We reported last week that BASIS Schools lost a $12 million in 2018 and are now $43 million in the red - but still borrowed $117 million and are expanding to Baton Rouge, LA. (See report that follows)

Where is the money going?

Not into the classroom. Total instructional expenses went up just 5% between 2016 and 2018 ($3,621/pupil to $3,803/pupil) while administrative costs went up 18% and plant maintenance and debt went up 68% over the same time period.

Shockingly, BASIS spending for instructional support (money spent on curriculum directors, staff training, and student testing) increased 220% to over $1000/pupil in 2018. BASIS Phoenix South Primary spent $2,645/pupil on instructional support in 2018. The average charter school in Arizona only spends $183/pupil on instructional support.

BASIS Scottsdale spent over $1 million on instructional support in 2018 - $587,000 just on salaries. Thing is…BASIS Scottsdale had no instructional support salaries in 2017. Did BASIS hire ten new staff at over $50,000/year at one school to oversee curriculum and testing?? Overall, BASIS claims to have spent $11 million on instructional support in 2018…enough to hire 200 people at $50,000/year.

We believe BASIS reported administrative costs as instructional support in 2018 to make it appear that management expenditures were going down. We have asked to Charter Board to look into the possibility that BASIS submitted fraudulent spending numbers on their 2018 Annual Financial Reports to hide management spending.

Classroom spending went up just $183/pupil between 2016 and 2017 while spending for instructional support, administration and facilities increased by over $1,700/pupil. It is safe to say that massive debt and increasing administration costs charged by Michael Block’s management company, BASIS.ed Inc., are burying BASIS Schools in crushing debt, unfortunately, on the backs of BASIS parents.

The total salaries of all BASIS teachers in 2018, including base salaries, overtime, and additional compensation, such as Prop 301 Classroom Site Funds and stipends for extra-curricular activities was $44,859,325. Parents paid $18,400,064 in fees and donations in 2018, providing BASIS with 41% of the total cost of teacher salaries.

Parents subsidized the cost of teacher salaries allowing BASIS to shift $58,101,419 to administrative costs and facilities, 48% of total expenditures, while only spending 37% of all funds on teacher salaries.

A note to BASIS parents – the money you give BASIS Schools in fees and donations enables them to build a multi-state real estate empire and pay exorbitant salaries to BASIS owners and executives.

We could be in error. Maybe Michael Brock would like to share the corporate finances of BASIS.ed Inc. to prove us wrong….

BASIS Sinks Further Into The AbyssArizona BASIS Schools Lost $12 million in 2018 and are $43 million in the red: So they borrowed $117 million to stay afloat…and collected $18 million from parents (Full report)BASIS Schools lost $12 million in 2018 to create a $43 million total deficit - more than any charter chain in Arizona… by far. They still have $17 million cash to keep the schools open – largely as the result on borrowing $117 million to refinance old loans. And yes, BASIS kept expanding - $16 million in new debt went to build a school in Baton Rouge LA with Arizona schools and income as collateral.

BASIS executives like to argue that they are simply refinancing debt to get lower interest rates and the red ink is caused by having to pay substantial prepayment penalties for the new loans.

The problem is far deeper than refinancing debt. BASIS Schools in Arizona, Texas, and Washington D.C. have lost money 5 of the last six years to the tune of -$17 million, but the majority of the red ink came from simply spending more than their revenue, not refinancing costs.

BASIS Schools in Arizona overspent their revenue by $7.8 million in 2018. BASIS Ahwatukee and BASIS Prescott lost over $ 1 million each last year. Imagine a single school of less than 700 students overspending their budget by $1 million.

Oddly, the three BASIS schools in Texas and the school in Washington D.C. made money last year and have $4.8 million in total positive assets, while leaving the BASIS Arizona schools with the $5,015,013 in prepayment penalties to get the $177 million in new bonds:

Imagine where BASIS would be if they didn’t aggressively seek parent donations and charge additional fees for countless items. BASIS raised over $18,000,000 in parent fees and donations - $1,541/pupil in 2018. The BASIS plea for donations might be: “We can’t operate our schools efficiently – please give us $1,500 so we can at least get our $16 million management fee.”

It is amazing that bond speculators were still willing to lend BASIS $117 million last year with BASIS losing an average of $10 million a year over the last three years. The Arizona State Board for Charter Schools sees no problem either. Even though BASIS fails to meet board financial expectations in two categories, the Charter Board will not look into BASIS finances or require any response from them regarding their financial position as long as they don’t seek to expand enrollment caps or add new schools – in Arizona.

Here’s what your financial advisor would tell you if your personal finances were like those at BASIS:“You can’t borrow your way out of debt, you’ll only dig yourself deeper. Make a budget and stick to it. Cut out non-essentials until the debt is reduced to manageable levels.” BASIS must believe they have a sounder business model.

BASIS Charter Schools lose huge amounts of money every year, even after soaking parents for $18 million in additional funds. On a positive note, BASIS founder Michael Brock still collected $16.7 million in management fees in 2018. The New York City condo HOA fees must be killing him…

When Charter Schools Look More Like Organized Crime Than Public Education:Collusion between American Leadership Academy and their auditor leaves millions unaccounted for(Full report with exhibits and sources)Let’s say a secretive businessman owns a legitimate company but runs several other businesses “off the books” to avoid public scrutiny. His legitimate business also makes payments to various vendors that are actually shell companies he has formed. He has a bookkeeper that keeps two sets of books and is paid to disclose as little as possible about the legitimate company while hiding revenue made by his shell companies and off the books enterprises.

Is our secretive businessman a mob boss, perhaps? Unfortunately no. Glenn Way, the founder of American Leadership Academy has been doing all of the above since 2012, with the assistance of his auditor Joel D. Huber. While every penny of public money is scrutinized in public school districts, charter schools are free to run businesses that look more like organized crime than public education.

Arizonans for Charter School Accountability believes that the American Leadership Academy (ALA), with the assistance of their long time auditor Joel D. Huber, have systematically and secretly utilized tax funds, student activity fees, bus fees, food service revenue, athletic program revenue, and public donations for the benefit of the charter owner rather than the schools, in violation of ARS. 13-1818.

Auditor Joel D. Huber has also failed to disclose any related party transactions made by ALA 2012-2017 on both annual audits and IRS 990 submissions, transactions that totaled over $30 million in 2017.

Simply stated, ALA has collected millions from parents 2012-2017 in the form of bus fees, lunch payments, student activity fees, and athletic program income that has not been reported in audits or on IRS non-profit 990 submissions by their auditor, Joel Huber. ALA has never listed expenditures for food service, extra-curricular activities, or athletics 2012-2017. They are also not forthcoming about many expenditures, claiming to spend nothing on student support (even though they have nurse’s aides and counselors that are supposed to be paid out of student support), instructional support or any supplies other than instructional supplies. The Charter Board has allowed these omissions since 2012.

New information made available on two 2017 ALA IRS 990 submissions indicate that 80% of ALA’s expenditures actually went to companies owned by Glenn Way, when their auditor had claimed there were no related party transactions of any kind on the ALA 2017 audit and 990. Way has received payments for personnel and management since 2011 - $23 million in 2017. His real estate companies collected $8.7 million in rent payments, and he sold a piece of land to ALA for $3.6 million in 2017. Joel Huber only disclosed the management payment in this revised 2017 990 form, hiding the rental payments and land purchase by Glenn Way. Huber finally revealed that three ALA board members, including Way, received six figure salaries from the related party management company. Huber listed none of these payments or salaries on the 2017 ALA audit .

Joel Huber worked with Glenn Way to hide $30 million in related party transactions made to companies owned by Way. It appears that Joel Huber also colluded with the management of ALA to hide millions in revenue and expenses for transportation fees, food service, extra-curricular activities and athletic programs by failing to report this income on both annual audits and IRS 990 submissions 2012-2017. ALA has, in essence, been running these programs “off the books” without disclosure of revenue or expenses, possibly for the financial benefit of the owners and facilitated by the lack of disclosure provided by their auditor.

Millions in unaccounted public funds at ALA cannot be explained or recovered unless a complete and accurate audit of their financial records is performed by an unbiased state auditor. To prevent future abuse, the Charter Board should conduct state audits of random charter schools to put audit firms on notice that their work might be actually be scrutinized.

The Arizona State Board of Accountancy has been contacted regarding the actions of Joel Huber. The Attorney General has an obligation to investigate charter holders that are misappropriating public funds under ARS 13-1818. Misuse of over $25,000 is a class 4 felony under this law. ALA has potentially misappropriated millions. A complete financial audit is called for.

School Board Meetings Are A Joke At Charter Schools19 Great Hearts Schools held one board meeting this school year - most lasted less than five minutes(Full report)

Charter school boards only are required by state law to make policy decisions. Many charters, like Great Hearts Academies, do not allow school boards to even make informed policy decisions. 19 Great Hearts Schools had the only governing board meeting of the school year on December 4, 2018. All had the same agenda and were individually held telephonically at the Great Hearts Lead Office at 4801 E. Washington St., Suite 250 in Phoenix. The 19 board meetings were completed between 9:04 AM and 11:31 AM with 8 taking three minutes or less to complete.

If all the schools had the same board members, it would be conceivable that these meetings could be run back to back like this. But the schools, for the most part, have completely different school board members. There were 52 different board members on the phone and somehow 7 meetings were started at the same time the last meeting ended (two started before the prior meeting ended). If you have ever been a part of a telephonic meeting with 5-7 people on the phone, you have surely experienced the cumbersome task of getting everyone’s feedback in this way. Great Hearts ran the entire Archway Scottsdale board meeting with six participants on the phone in just 3 minutes. It would take us that long to call the roll.

The 19 schools boards all unanimously approved the same items:

The minutes of the last meeting on July 10, 2018

A change in the mailing address for the school

Approval of the 2019-20 school calendar

Approval of Great Hearts Gift Acceptance and Fundraising Policy

Approval of each school’s Special Education Policies and Procedures

Great Hearts, and other large charter chains, purposely make board meetings into a race to adjourn, avoiding proper consideration of policies and rubber-stamping the will of the corporate board. Local needs and concerns of individual schools are not addressed at charter school board meetings – only the lock-step approval of corporate policies. All real decisions – expenditures, hiring and firing, student discipline, and even curriculum are made in secret by the corporate board. The process is cynical and arrogant.

The Legislature needs to step up and address the secrecy of governance in charter schools. SB 1394, that is making its way through the legislative process, requires school board members to not all be family members and mandates training on procurement and discipline – activities charter schools boards take no part in. It is smoke and mirrors written by the Charter Association to allow charter corporate boards to continue to make all decisions in secret. Charter school boards should either be given authority to make operational decisions for the schools or be eliminated… saving Great Hearts a couple of hours a year in pretend school board meetings.

The problem with charter schools not following procurement rules is far more pervasive than one-time sell offs that enrich owners, like the $12 million payday Republican Eddie Farnsworth had last year selling his schools’ buildings. When charter owners don’t have to gets bids for purchases or have their expenditures approved by school boards in public meetings, it opens the door to “self-dealing” - in essence buying goods and services from yourself at an unknown markup. The accounting term is “related party transactions”.

The following are charter schools that exemplify the self-dealing that is costing taxpayers millions every year and enriching charter owners.

Imagine Inc. are the masters of self-dealing. The national chain Imagine Inc. provides all operations, employees, and facilities to the 20 Imagine schools. Imagine Inc. charges their schools (themselves) “loss mitigation” insurance for 1% of revenue to help pay for their mismanagement if the schools run a deficit. They provide the schools “start-up loans” – Imagine Avondale Elementary’s $200,000 start-up loan from Imagine Inc. (themselves) is for 20 years at 10.5% interest. That works out to $30,000/year and $600,000 over the twenty years of the loan. Family members of Imagine Inc. executives are paid thousands to provide “services” to the schools - $11,200 for grant writing at Imagine Avondale for example.Southgate Academy - Self-dealing is commonplace in small Arizona charter schools as well. Southgate Academy (enrollment 469 students) made a questionable $ 4 million real estate deal with a company owned by one of the school’s board members that ended with the board member getting $650,000 in interest payments and taking back ownership of the property free and clear.Management companies – 186 charters have related party management companies. Owners of dozens of small charters form management companies and pay themselves to “manage” the school. Many charters also lease their facilities from companies owned by the charter holder – all for an unknown markup. Other self-dealing schemes:- GAR LLC purchased a vehicle from the son of a member for $16,500- American Basic Schools owners formed SafeTrans LLC to maintain their buses but their auditor found they overpaid themselves $157,740 for services they didn’t receive in 2016. Paying yourself $157,000 for non-existent services sure looks like a red flag that should trigger a full audit by the state, but the Charter Board did nothing. In fact, no charter has ever been audited by a state agency since 1996.

Thank goodness the charter’s auditors report all of this self-dealing – or do they?One of the biggest charter paydays came this year when Glenn Way, owner of American Leadership Academies (ALA), sold the schools owned by his real estate company to the charter school for an $18 million profit. Unfortunately, ALA’s auditor, Joel D. Huber, never revealed that Way’s real estate company, Schoolhouse Development LLC, was renting the schools to ALA for $8 million/year. We have filed formal complaints against Joel D. Huber with the Arizona State Board of Accountancy and they are investigating the charges. If this auditor can ignore $8 million in related party transactions, how many other self-dealing schemes are out there we know nothing about?

Charter owners should not be able to use tax funds as a personal checkbook. The Legislature must require charter owners to follow procurement laws and the Arizona State Board for Charter Schools must be given the authority to audit charters making inappropriate expenditures of tax funds.--------------------------------------------------------------------------------------------

Why We Must Demand Charter Accountability: Part 2Alternative Charters are a Path to RichesSeventy percent of charters spending more on both management and real estate than classroom instruction are Alternative Schools (Full report)

Educators, politicians, and parents would all agree that tax funds for education should be spent primarily in the classroom on teachers, teacher aides, and classroom supplies. Twenty charter holders in the state, however, put almost no money in the classroom – they spend most of their revenue on management and real estate. Fourteen of these pathetic charter schools are alternative schools. Six are managed by one of the largest charter holders in the state, the Leona Group.

Alternative schools serve the most at-risk students in Arizona – students with histories of disruption, returning dropouts, students more than a year behind in credits, primary care givers, adjudicated, and foster kids. Alternative schools primarily serve minority students – 91% of alternative charter schools have a higher minority population than the average charter school. Alternative charters are only in session 144 days per school year instead of the standard 180 days, yet receive the same funding as other charter schools. There are no A-F grades for alternative charter schools, so they have no academic accountability. The Arizona State Board for Charter Schools cannot close alternative schools for academic deficiencies.

Students in alternative schools need an incredible amount of support to be successful – counselors, social workers, tutors, small class sizes, and an engaging curriculum. You would think it would be more expensive to educate students that couldn’t make it in regular schools but instead, most alternative charter schools have limited facilities with fewer teachers and support staff than regular schools. As a result, alternative charter schools are making millions for their owners instead of educating students. The Charter Board does not monitor charter spending, so they don’t know there is a problem.

Summary: Of 75 alternative charter schools in Arizona:

20 lost money in 2018

Half of these spent more for administration or facilities per pupil than the average charter school.

9 of the overspending charters spent more on BOTH administration and facilities than the state average.

30 spent less than 90% of their revenue, collectively banking $15 million (the state average is 96% spent).

17 spent more on administration than state averages.

14 spent more on facilities than state averages.

10 spent more on both administration and buildings than state averages.

22 of the30 spent less on classroom instruction than the state average …while they left $15million unspent to add to their assets.

49 spent more on administration per pupil than the state charter average

41 spent more on facilities per pupil than the state average

22 spent more on administration per pupil than on classroom instruction

29 spent more per pupil on facilities than on classroom instruction

14 spent more on BOTH administration and facilities per pupil than on classroom instruction

Conclusions:The reason alternative charter schools can spend so little on classroom instruction is simple – they are worlds apart from traditional district high schools yet receive $1,770-$2,000 more per pupil from the state than a district school. The storefront charter schools you see in strip malls are likely alternative online charter high schools. They receive more funds per pupil than a district high school with 40 acres of buildings and fields. Brick and mortar, non-online alternative charter schools also have limited programs and few teachers. Alternative charter schools typically have 50% fewer teachers than district high schools of comparable size, offer far fewer electives, and have limited support staffs.

The question is: Do at-risk students that have failed in other academic settings benefit from a school with a stripped down curriculum, fewer teachers, and support staff? Or do owners benefit from not having to pay for better classroom instruction and student support, since the state government is clearly not providing meaningful oversight how well alternative students are being educated? In Arizona the owners win. Big time.Recommendations:

The Department of Education needs to finalize A-F grades for alternative schools that measure how effectively they are educating students.

The Charter Board needs to close alternative charters with low academic achievement.

The Charter Board should investigate the alternative charters that spend less than 80% of their revenue.

The Charter Board should investigate the alternative charters that spend more on both administration and facilities than on classroom instruction

The Legislature needs to:

Mandate the Charter Board monitor charter spending and publish charter per pupil expenditures for administration, instruction, student support, facilities, and special education compared to state averages.

Require a complete study of alternative and online schools to determine if they should receive the same charter additional assistance as charters that offer comprehensive programs and have appropriate school facilities.

Give the Charter Board, the Auditor General, and the Attorney General authority to audit the books of any charter owner suspected of misappropriating state funds.

Why We Must Demand Charter Accountability: Part 110 Charter Holders Spent less than 85% of their revenue and netted over $25 million Last Year (Full report)

Ten charter owners netted over $25 million in 2018 by simply not spending their tax revenue. Four of the ten are alternative schools that serve the most at-risk students in the state. Two are D-F schools. But instead of hiring counselors or additional teachers to improve academic performance, the owners added millions to their bottom lines.

What does the Arizona State Board for Charter Schools say? They all meet the Board’s Financial Framework expectations - they are making money and are successful businesses. We think each school should be thoroughly investigated and audited.

There is nothing wrong with having a little cushion – charters average having 4% of revenue left over at the end of the year and public districts are allowed to have and annual 4% carry over. The ten schools in question put $25 million in the bank.

The worst are:

Alternative online schools run by for- profit Pinnacle Education MGRM, a wholly owned subsidiary of the multi-national software corporation WGRM based in India. Pinnacle spent less than half of their state revenue last year and netted $4,348,615 in profits that were sent back to the parent company in India. (Full report)

Alternative schools owned by Steve Durand. Mr. Durand spent 53% of his state revenue and netted $3,619,572 in 2018. Durand’s schools are non-profit but are buying expensive real estate – his newest “school” is at 6710 W. Calle Lejos, a 5500 square foot mansion with a six-car garage purchased for $1,350,000. (Full report)

“F” rated Star Charter School chartered by Painted Desert Demonstration Projects, Inc. and owned by Mark Sorenson. Star School serves Native American students outside of Flagstaff and receives an additional $750,000/year in Federal Impact Aid. The non-profit had over $2 million in assets in 2017 and added another $1,156,546 last year, spending 65% of revenue - while providing an “F” rate education

Alternative Southgate Academy owned by Sherry Matjasik. Southgate spent 78% of revenue and added $1,232,875 to the non-profit’s bottom line of over $2 million. The charter invests its money in real estate. Southgate bought a piece of desert land outside of Tucson for $4 million from a company owned by a member of the Southgate board. After making mortgage payments to the board member for several years, they still owed $2,481,706 in 2017. They then decided that they didn’t need the land after all and gave it back to the board member. This is a classic example of how a related party can benefit from the assets of their non-profit.

Alternative for –profit online GAR, LLC. The online charter spent 83% of their revenue and made $1,250,736 in profit for its owners Patrick Meehan and Scott Lopez. The owners have collected over $11 million in profit and management fees since 2012. (Full report)

Three charters owned by Reana James netted $4,383,304 while expending 84% of their revenue. Ms. James had one “D” and one “F” school and made the news recently when they refused to pay teachers promised Prop 301 funds and face multiple allegations of sexual misconduct by one of their principals, who is a board member.

The four other charters spending less than 85% of their revenue that netted over $1millon in 2018 are:

The Legislature needs to rein in related party transactions, require the Charter Board to monitor charter spending, and give the Board the power to audit charter owner’s finances when they suspect fraud. Maybe charter schools are over funded – some seem to have a hard time spending tax funds in the classroom.

When a charter school looks more like organized crime than public education:For-profit GAR Inc. has sucked $11,000,000 out of Student Choice High School since 2012 (Full report)

Student Choice High School (chartered by GAR Inc.) has two storefront locations in strip malls and is owned by Patrick Meehan and Scott Lopez. We saw red flags when they reported spending only 9% of their revenue on classroom salaries and only 5% of revenue on facilities on their 2018 annual financial report. Where did the money go?Half of all state revenue ($11,000,000) has gone either to profits or management fess to Meehan and Lopez since the for-profit charter opened in 2012, 2018 was a record year: the owners made $1,189,804 in clear profit and $3,699,807 in management and accounting fees, while spending just $657,446 on classroom salaries. To top it off, they bought a car from one of their sons for $16,500 using school funds, not the millions they made off the school.The management fees came out of nowhere. In 2017 they spent $3,328,710 less on management for instruction, instructional support, and administration. They suddenly decided to start a management company and charged themselves $3,400/pupil, netting a cool $3 million in 2018.How can they get away spending less than 9% of their state revenue on classroom salaries for teachers and teacher aides?Student Choice High School is an alternative high school for at-risk students that are behind in credits or were failing in other schools. The school uses online instruction as well as traditional classrooms. There are no A-F grades for alternative schools, so there is no accountability for academic achievement at Student Choice.The 2018 AZ Merit results give a real indication about achievement at Student Choice High School. Out of 1046 students in 2018 (most of which were behind in required credits like English and math), 150 students took an AZ Merit English test – only 16 passed. Eighty-four took an AZ Merit math test –only 5 passed. That’s 2% of students passing state testing. But instead of hiring more teachers, counselors, or social workers to help increase student achievement, Meehan and Lopez pocketed millions.The school’s auditor, Henry J. Fortino, didn’t see any problem with using state education funds this way. We complained to the Department of Education about the irregularities in AZ Merit testing – they told us to complain to the Charter Board. The Arizona State Board for Charter Schools did not question how GAR Inc. was spending tax funds.If this happened at Scottsdale Unified, people would go to jail for years. For an Arizona charter school, this is just smart business. - the Charter Board gave GAR Inc. 100% passing ratings on their 2018 Financial Framework.The Legislature must investigate the over funding of online schools that allows owners to pocket millions – Damian Creamer at Primavera Online made $5 million in 2018. Specific legislation is needed to require the Charter Board to monitor charter spending and mandate them to audit the books of schools like Student Choice – a money-making racket disguised as a public school.

Revenue raised by Prop 301 has been earmarked as Classroom Site Funds designed to help increase teacher salaries since it was passed in 2000. Twenty percent must go to increase teacher base pay, 40% to provide performance based compensation to teachers, and 40% to be used flexibly – most districts use this 40% to increase teacher salaries as well.

SB 1345, introduced by Republican Senator Kate Murphy-McGee and the identical HB 2563 introduced by Republican Rep. Michelle Udall, would allow districts and charters to spend all of the Classroom Site Funds in new ways – character education, tutoring, or to pay for ”the increased cost of additional school days that were enacted in 2000” (the school year was increased from 175 to 180 days in 2000 adding expenses in school operations). Schools can now plug Prop 301 funds anywhere in the budget to compensate for the money it has cost since 2000 to operate schools five days longer every year. Not a nickel has to go to teacher salaries.

Brophy-McGee’s legislation still mandates that school districts have a performance based teacher compensation system and it is likely that districts will continue to use Prop 301 money to bolster lagging teacher salaries.

But charter schools are not required to have the same performance based compensation system and many charter owners have simply not given Classroom Site Funds to their teachers. They have been unable to spend the unspent money every year on purposes other than teacher compensation and have had to carry over the funds, by law.

Now charter owners will be free to spend Classroom Site Funds to replace funds they would have spent to run the schools, increasing their bottom line. Worse, charters will be able to spend the money they refused to give to teachers over the years…to benefit themselves rather than the teaching staff.

The following eleven charter owners are sitting on over $16,600,000 in unspent Classroom Site Funds - money they will now be able to spend to increase profits if the Republican bill is passed (the * indicates online schools that have few teachers and use little available funds for salary increases).

* Damian Creamer Primavera Online - $3,433,370

Imagine Inc. - $2,728,021

* Scott Durand Educational Options - $2,728,021

Linda Proctor Arizona Agribusiness - $814,241

Legacy Traditional - $1,320,986

* Ombudsman - $674,130

* E-Institute - $817,482

Eugene Kinghorn Rose Academies -$551,142

* Pinnacle Education - $914,953

Rhonda Owens Skyline Schools - $1,326,695

* PPEP Arizona Virtual Academy K-12 - $2,976,140

(CSF Carryover found on page 4 of the 2018 Annual Financial Report found here)(Spreadsheet with CSF breakdown for the eleven charters found here)

This is what Republicans are offering as transparency and accountability in Arizona charter schools – a free hand to pocket money that should be going into teacher salaries.

When a charter school looks more like organized crime than public education:GAR Inc. has sucked $11,000,000 out of Student Choice High School since 2012Arizonans for Charter School Accountability(Full report)

Student Choice High School (chartered by GAR Inc.) has two storefront locations in strip malls and is owned by Patrick Meehan and Scott Lopez. We saw red flags when they reported spending only 9% of their revenue on classroom salaries and only 5% of revenue on facilities in their 2018 annual financial report. Where did the money go?

Half of all state revenue ($11,000,000) has gone either to profits or management fess to Meehan and Lopez since the for-profit charter opened in 2012, 2018 was a record year: the owners made $1,189,804 in clear profit and $3,699,807 in management and accounting fees, while spending just $657,446 on classroom salaries. To top it off, they bought a car from one of their sons for $16,500 using school funds, not the millions they made off the school.

The management fees came out of nowhere. In 2017 they spent $3,328,710 less on management for instruction, instructional support, and administration. They suddenly decided to start a management company and charged themselves $3,400/pupil, netting a cool $3 million in 2018.

How can they get away spending less than 9% of their state revenue on classroom salaries for teachers and teacher aides?

Student Choice High School is an alternative high school for at-risk students that are behind in credits or were failing in other schools. The school uses online instruction as well as traditional classrooms. There are no A-F grades for alternative schools, so there is no accountability for academic achievement at Student Choice.

The 2018 AZ Merit results give a real indication about achievement at Student Choice High Schol. Out of 1046 students in 2018 (most of which were behind in required credits like English and math), 150 students took an AZ Merit English test – only 16 passed. Eighty-four took an AZ Merit math test –only 5 passed. That’s 2% of students passing state testing. But instead of hiring more teachers, counselors, or social workers to help increase student achievement, Meehan and Lopez pocketed millions.

The school’s auditor, Henry J. Fortino, didn’t see any problem with using state education funds this way. We complained to the Department of Education about the irregularities in AZ Merit testing – they told us to complain to the Charter Board. The Arizona State Board for Charter Schools did not question how GAR Inc. was spending tax funds.

If this happened at Scottsdale Unified, people would go to jail for years. For an Arizona charter school, this is just smart business. - the Charter Board gave GAR Inc. 100% passing ratings on their 2018 Financial Framework.

The Legislature must investigate the over funding of online schools that allows owners to pocket millions – Damian Creamer at Primavera Online made $5 million in 2018. Specific legislation is needed to require the Charter Board to monitor charter spending and mandate them to audit the books of schools like Student Choice – a money-making racket disguised as a public school.

BASIS and Greats Hearts Reaped Millions Earmarked for Poor and Minority Students (Full Report)A Federal program that was designed to bring school choice to poor and minority students has been used by Basis Schools and Great Hearts Academies to build exclusive, college prep schools in affluent neighborhoods around the state, netting over $1 million for each school.

Superintendent of Public Instruction Diane Douglas proudly announced on October 4, 2018 that the Arizona Department of Education’s Arizona Charter Schools Program (AZCSP) was the recipient of a $55 million Title IV grant from the US Department of Education. The purpose of the grant is to hold competitive applications for school leaders interested in opening charter schools that serve disadvantaged Arizona students... Sub-recipients will be supported by a $250,000 annual award over a period of five years for a total of $1.25 million.

Educationally disadvantaged is defined in the grant as schools serving 40% or more students in one or more categories – racially diverse, poor, special education, or ELL.

BASIS Schools was awarded funds from this program in the past to build seven new schools and Great Hearts Inc. opened five schools, collecting millions in federal aid meant to serve poor, minority, and special needs students. Unfortunately, those at-risk students aren’t a part of the BASIS and Great Hearts model where Whites outnumber Hispanics 4 to 1.

The secret to qualifying for federal assistance is to serve affluent Asian college prep students. These eleven schools have enrolled 1858 Asian students, nearly 20% of all Asian charter students in the entire state. There are only 895 Hispanics enrolled, 12% of the total in a state where 45% of all K-12 students are Hispanic.

These Basis and Great Hearts schools have no ELL students. There are no free/reduced lunch students. Only 3% of students are in special education - three BASIS schools have no special education students at all. None of the schools have Title 1 programs targeting disadvantaged students. These schools do not provide a lunch program or transportation allowing disadvantaged children from the inner city to attend.

Instead, 80% of students in these elite schools are either White or Asian. Often the term “underserved” is used when defining ethnic minorities to assure that genuinely at-risk students are being assisted. It would be difficult to argue that the 660 Asian students attending BASIS Chandler are an underserved population.

Jim Hall, founder of Arizonans for Charter School Accountability, noted , “The greed of corporate charter owners is to blame – taking every advantage they can to make a profit. But the Arizona Department of Education shares in the blame for allowing this to happen. Hopefully, the new $55 million grant will be given to charter owners who truly want to serve disadvantaged children.”

(Data was gathered from the October 1, 2016 Enrollment Report and from Federal expenditures listed on page 9 of the Annual Financial Reports for the schools).

The Richest Charter School in Arizona Has The Worst Academic Performance In The StatePrimavera Online owner Damian Creamer makes millions while students languish. (Full Report)

Summary:Primavera Online is by far the richest charter school in Arizona. The non-profit Primavera Technical Learning Center amassed over $45,000,000 is assets 2007-2015 by averaging over $6 million a year in profits. Primavera also bought $5 million in real estate during that time period (all cash transactions). Despite being the wealthiest charter in Arizona, Primavera suddenly gave the charter business to their for-profit software provider, the American Virtual Academy (AVA), owned by the President of the Primavera Board, Damian Creamer. The following year AVA made over $10,000,000 in profit and Creamer, as the only stockholder in AVA, took a distribution of $670,000. In 2017 Creamer took a distribution of $8,785,812 from the profits provided by Primavera Online.

Online schools are funded at 95% the rate of traditional charter schools yet they have no facilities, lunch program, transportation, and hire very few teachers to be available for students. The bottom line is online charters cost very little to operate. Their major expense is the licensing of the software used for instruction. As it happens, Damian Creamer’s for-profit AVA provided the software for Primavera Online to the tune of $97,000,000 in licensing fees 2007-2015. Creamer and family members also drew $1,809,000 in salary and benefits from his non-profit before “giving” the lucrative online business to his for-profit company in 2015, a clear violation of IRS non-profit regulations.

Primavera Online is the largest online charter school in Arizona but has among the worst student achievement of any school in Arizona. Just 17% of Primavera’s full time high school students completed an English class allowing them to take the AzMerit English test and only 10% of students in grades 9-11 completed a math class allowing them to take the AzMerit Math test in 2018. The number of students passing the exams was shocking: out of 3,371 full and part-time students in grades 9 -11 only 139 passed AzMerit English and just 64 passed AzMerit Math.

Jim Hall, founder of Arizonans for Charter School Accountability, commented: “American Virtual Academy represents the worst example of charter school corruption imaginable. Tens of thousands of students enroll but only 267 learned enough to be competent in English and only 132 passed the AzMerit math exam in grades 6-11. The owner, Damian Creamer, makes millions in profit and bilks taxpayers out of $12-$15 million a year in exorbitant software licensing fees. Hall continued: “The American Virtual Academy Inc. and the non-profit Primavera Technical Learning Center exist for one reason – to enrich Damian Creamer and his family utilizing tax funds that should have gone to districts and charters that actually educate children. We say shut them down.”

(A complete report (including sources) on the financial relationships between Damian Creamer, Primavera Technical Learning Center, and the America Virtual Academyis here:feb_27_ava_report.docxVisit us on Face BookTalking points regarding charter school accountability (click here)This is a two page summary that can be copied back to back as a one page information sheet with basic data about charter schools in Arizona and the issues that require far more regulation and accountability.feb_27_ava_report.docx Please feel free to distribute this information to candidates, voters, educators, and government officials (including your Republican friends!) so the public will begin to understand the complete lack of transparency in charter school operations that is costing millions in education revenue.

Charter School Prop 301 Funds Are In Complete Disarray:Money targeted for teacher raises is an open checkbook for charter owners without oversight by the Charter Board (Full Report) (Prop 301 Charter Data Set)Press Release: July 2, 2018Phoenix, Arizona

The Arizona State Board for Charter Schools has provided absolutely no accountability for the expenditure of Prop 301 funds by charter owners, allowing over 100 of 417 charter holders to misuse Prop 301 funds and an additional 72 to fail to report how they expended the funds.

Without supervision from the Charter Board, the $75 million in Prop 301 funds given to charter schools is up for grabs. Charter schools bought bus passes, leased classrooms, paid administrators, and purchased health insurance with Prop 301 funds instead of increasing teacher salaries in 2017. They have left $34 million in Prop 301 funds unspent over the years to prop up their bottom lines.

The charter misuse of Prop 301 funds is widespread. For example:

72 charters violated state law (ARS 15-977. H) by failing to submit a 301 Narrative in 2017 - an offense that could lead to the revocation of their charters.

The 23 Great Hearts Academies submitted 301 Narratives that did not account for Base Pay and Performance Compensation, the only charter owners making this “mistake” ” - an err Great Hearts has made every year undetected since 2013.

106 charters’ s 301 spending reported on their Annual Financial Report did not match spending reported on the 301 Narrative

58 charters did not spend Base and Performance funds for Teacher salary increases as required by law. American Virtual Academy spent $181,000 earmarked for teacher salaries on “Other” expenses

While not illegal, charters have accumulated over $34 million in unspent 301 funds that are added to their net assets

Career Success Charter used 301 funds to buy bus passes and pay administrators

Compass High School used 301 funds to pay all teachers benefits and rent classroom space from a related party.

It is impossible to catalog all the abuses associated with Prop 301 funds because so many charters failed to submit the required 301 Narratives or submitted wildly inconsistent spending numbers between their Annual Financial Reports and the 301 Narrative.

The Charter Board has not examined charter 301 Narratives for years - 179 charter holders are simply not following state laws - apparently with the Charter Board’s blessing.

.Jim Hall, founder of Arizonans for Charter School Accountability noted: “We collected all of the charter data on 301 expenditures from their annual financial reports and the 301 Narratives in about 20 hours - opening each file and cutting and pasting the data. The Arizona Department of Education could provide the information to the Charter Board in less than an hour. The Charter Board has never bothered to verify if charter owners even submit the 301 Narrative, let alone read them.”

Hall continued: “The Arizona State Board for Charter Schools has been unwilling to provide the audit and compliance oversight necessary to assure that charter owners are responsibly spending public funds. The Arizona Attorney General must demand that the Charter Board monitor charter schools’ expenditure of state funds or over turn over that responsibility to the Auditor General’s Office, like every other state agency.”

CONNECTTWEETLINKEDINCOMMENTEMAILMOREArizona’s charter school experiment cannot be sustained without public confidence in how public money is being spent.The Legislature took one positive step to increase confidence – and a giant leap to undermine it.Charter school supporters should be lining up to fix this.Why?Because more transparency and financial accountability are in the long-term best interest of charters.How are charters using public money?Craig Harris, a senior reporter for azcentral.com, examines BASIS Phoenix South Primary, a new charter school, and tries to find out how taxpayer dollars are being spent at the successful chain of charter schools. Tom Tingle/azcentral.comLet’s be clear:

We support charter schools.

They provide a valuable option for parents and have shown success in serving students.

Lawmakers also gave the board the power to revoke or refuse to renew a charter for financial reasons.

Ashley Berg, executive director for the Arizona State Board for Charter Schools, told The Republic by email that the board will develop expectations “with a wide range of stakeholders,” but “does not have a preconceived notion of what that process will be.”“Now that the Board has the legal authority necessary to close charters for financial deficiencies or deny charter renewals for financial deficiencies, we are in the process of determining how best to exercise that authority,” she wrote.Jim Hall of Arizonans for Charter School Accountability says the process should involve monitoring how charters spend their money, including a way for parents to know how much public funding for students actually gets to the classroom.“It is public money,” he said. “We should have every right to know exactly how that money is spent.”In district schools, there is tough scrutiny on spending.And lawmakers just made it tougher.Why let charters out of this law? That's badCharter school enrollment is growing in Arizona, but what's the difference between a charter and your neighborhood district school? azcentral.com WochitWhich brings us to what the lawmakers did wrong:The education funding bill signed by the governor toughens up procurement laws and penalties in response to scandals at Scottsdale Unified School District, where the former superintendent and another top administrator were ousted in April and a grand jury this month indicted the former chief financial officer in connection with conflict-of-interest.But the new law does nothing to change the fact that what was illegal in Scottsdale is not only allowed in charter schools, it is common practice.A report last year from the Grand Canyon Institute found that 77 percent of charters use “related party transactions,” that involve spending public money on non-competitive bids with companies owned by charter operators, board members or relatives.These practices are illegal for district public schools. But they remain legal for charter schools – even after lawmakers moved to toughen up procurement rules and penalties for district schools.What’s more, the new law requiring district schools to post their budgets and audit information exempts charters.Double standard undermines confidenceThe problems with procurement practices in the Scottsdale district were uncovered by parents and teachers who reviewed publicly available financial records and documents, which makes the case for providing more information to the public about how public money is spent.This double standard the Legislature just endorsed may reflect the goal of providing charters with more flexibility to operate without burdensome regulations.But it undermines public confidence and it will not withstand public scrutiny.The charter board can help by monitoring charter school spending and making the information readily available to the public.Next year, lawmakers can fix this by applying the same rules about spending public money to charter schools as it applied to other public schools

A License To Steal: Republican Bill Allows Charter Schools To Take Bribes and Kickbacks

Republican amendments to HB 2663 that were rushed through the Legislature in the final minutes of the 2018 session enable charter owners to operate in even greater secrecy than ever and even allow charters to take bribes and kickbacks from vendors and contractors.

The legislation quietly removed the requirement that procurement rules and the procurement gifting prohibition include charter schools.

Charters have always been able to opt out of all state procurement regulations so they do not have to get bids for purchases. Charter owners simply had to request the waiver from the Arizona State Board for Charter Schools and it was automatically approved. Over 90% of all charters have opted out from procurement laws. Now charters are automatically exempt.

By not following procurement laws charter owners can buy from anyone, including themselves. For example, non-profit charters often purchase all their supplies and lease their buildings and teachers from a for-profit company owned by the charter holder without getting bids, making the transaction secret. Leona, Great Hearts, BASIS, Imagine and others operate this way. A charter owner can have his brother build a $12 million school without any public documentation. The recently closed Bradley Academy bought over $500,000 in supplies from four companies owned by the CEO, who suddenly left the state with millions in tax dollars. Without transparency, anything goes.

A public district employee that does not follow all state procurement laws is personally liable for any loses plus an additional 20% and legal fees. They can also be charged with a class 4 felony. Charter employees can rig bids with impunity.

But this is old news – charter owners have been able to request exemptions from procurement laws for years. The real travesty in HB 2663 is allowing charter schools to be exempt from procurement gifting provisions. A gift or benefit is defined in the new legislation as: “Gift or Benefit” means a payment, distribution, expenditure, advance, deposit or donation of monies, any intangible personal property or any kind of tangible personal or real property. Gift or benefit does not include either:

Food or beverage

Expenses or sponsorships related to a special event or function to which individuals listed in subsection N of this section are invited

In simple language this means that public officials cannot take bribes in connection with awarding a contract to a particular company. They can be wined and dined or be treated to a “special event” but can’t receive any other “gifts” that might influence a contract decision. If a public district employee takes anything that is worth over $300 they can be charged with a class 6 felony.

But not charter owners. Charter owners are now allowed to take any form of bribe a company might offer to get a contract, much like a mobster might require in order to do business. Since charter owners to not have to follow procurement rules, none of the actions associated with awarding a contract are public – now including bribes and kickbacks extorted from contractors.

Why would charter owner demand legislation allowing them to take unexplained money from contractors? It is simple - in the charter world the contractor is often the charter owner himself. For example, Glenn Way, owner of the American Leadership Academy (ALA) charter schools, has his schools designed and built by Schoolhouse Development LLC, a for-profit company he owns. Schoolhouse buys the property and builds the schools, all for undisclosed costs, and then leases the schools back to non-profit ALA. Since we have no idea how much Schoolhouse pays for their mortgage, we have no idea how much money is being siphoned in exorbitant lease payments, which could be considered kickbacks to the charter owner. Recently, ALA received $196 million in bond money to “buy” its schools from companies owned by Glenn Way. Built them, leased them, then sold them…to himself.

Money is changing hands constantly in this process between ALA and Schoolhouse, all to the benefit of owner Glenn Way and all being paid for by tax revenue. HB 2663 makes sure it can be done in secret – and is legal. The mob would pay millions for this arrangement.

Arizona already had the least regulation of charter schools in the country. With HB 2663 charter schools can make purchases from their owners or relatives in complete secrecy and are allowed to extort bribes from contractors in order to receive a contract. Charter schools can mirror organized crime syndicates with impunity.HB 2663 permits charter owners to function like mob bosses or corrupt third world governments. Only in Arizona…where school choice trumps all accountability and transparency in the expenditure of public funds. Shame on Republicans for sneaking in this license to steal.

_________________________________________Charter School Teachers - Join #RedForEd...but read this first!Does your boss value teachers and kids or management fees and real estate?There are 226 charter holders out of 417 that spent less on all regular and special education classroom instruction than on administration and facilities combined in 2017. This Excel report lists in red the charters that spent more on administration and/or facilities than in the classroom. Below that are the charters that spend more in the classroom. Email arizcsa1000@gmail.com for more info or clarification. Knowledge is power...Classroom instruction includes all teacher and teacher aides salaries and benefits, classroom supplies, and "purchase services (contract teachers for speech, for example)Administration includes general administration (superintendent's office), school administration (principal's office and personnel to run the school) and central administration (business services, HR, etc.)Facilities includes debt service (mortgage on buildings) and plant maintenance (this code is also used to post lease payments)All data is from the 2017 annual financial reports available at: http://www.ade.az.gov/schoolfinance/forms/leaquery/submittedfiles.aspx

The Worst Charter Schools in Arizona - Part 2BASIS Schools lost $5 million in 2017 – the most in ArizonaBASIS has $32 million in red ink while increasing management expenditures to record levels (Full report)Summary:Fifteen of BASIS School’s 17 Arizona charters lost a total of $5 million last year, more than any other charter holder in the state, increasing BASIS total negative assets to over $32.1 million, the largest deficit in Arizona. BASIS claims that the red ink is simply ledger entries caused by “write-off of loan issuance costs and prepayment penalties” they have had to pay to refinance $280 million in real estate loans the last few years. Refinancing alone cost BASIS $14 million in 2016 and 2017.

But BASIS overspent its budget by $5 million in 2017, independent of refinancing. A big chunk of BASIS’ record setting red ink comes from its administrative costs which are the highest of any school system in Arizona. BASIS.ed Inc., the for-profit company that manages all BASIS schools, spent $27.6 million on administration in 2017 for such things as management fees, executive salaries and expansion - $9.8 million more than in 2016. Seven BASIS schools spent over $1 million for just school administration - BASIS Scottsdale spent an unbelievable $1.7 million for school administration alone – enough to pay 14 principals $100,000 each with benefits.

One thing is certain – funds didn’t go to the classroom where spending decreased by $299/pupil in 2017. BASIS parents are told that BASIS.ed Inc. must charge fees for everything, including workbooks and class materials, because they are underfunded by the state. They also ask parents to donate $1,500 annually to help the beleaguered BASIS.ed Inc. pay teacher salaries. Last year Arizona BASIS parents paid $13 million to BASIS, nearly $2 million more in fees and donations at existing schools than in 2016. It apparently didn’t make its way to the classroom.

BASIS is Governor Ducey’s poster child for school choice and BASIS Scottsdale is “best” school in the country according to U.S. News & World Reports But BASIS is diverting millions into administrative expenditures that go directly to BASIS ed Inc., the for profit company owned by BASIS founder Michael Block. Since BASIS ed Inc. is a private company the public does not have the right to know how they are spending tax funds. But one thing is certain – BASIS schools did not suddenly become $10 million more expensive to manage in a single year.

The other large charter chains of similar enrollment do not have these problems. Legacy Traditional Academies (11,050 students) operates their schools on $10 million less a year than BASIS (12,653 students). Great Hearts Academies(11,599 students) show a $26 million surplus compared to the BASIS $32 million deficit.

These numbers seem to indicate that BASIS is one of the most mismanaged charter companies in Arizona.

BASIS is drowning in red ink:BASIS Schools non-profit has been consistently losing money since 2013 and lost almost $10 million a year 2015-2017.

BASIS executives claim that the losses are the result of multiple loan re-financings that cost millions in pre-payment penalties and fees. But much of the red ink is the result of poor financial management. BASIS Schools were profitable in 2016 showing a $633,000 surplus in revenue over expenses, but 14 of 17 Arizona BASIS Schools lost money in 2017 - a total loss of over $5 million.

It is very informative to compare the net income and assets of the Great Hearts chain. Great Hearts has been on the same expansion path as BASIS and now has 22 schools with a total enrollment in 2017 of 11,599, compared to BASIS 12,653 students. Great Hearts is a college prep charter that operates in new, modern facilities, just like BASIS. But somehow Great Hearts schools are not losing money - the Great Hearts chain had a surplus of over $6 million dollars in 2016 and $4.7 million in 2017, bringing their total positive assets to over $ 26 million.

There is a $58 million difference between Great Hearts rise to be one of the largest charter chains in Arizona and the similar expansion of BASIS.ed Inc. We believe that BASIS.ed Inc. has extracted much of this through excessive management expenditures.

BASIS leads Arizona in high administrative costs:

BASIS per pupil spending for administration is among the highest in the state. The average public district spends $863/pupil while BASIS spends $2,320/pupil on administration.

School choice proponents argue that it is unfair to compare charter administration costs with district expenses, although the only difference we can find is perhaps in advertising costs. Legacy Traditional Academy has a similar number of students as BASIS yet spends $10 million less running their schools. Larger charter organizations, like BASIS, should be able to operate more efficiently because all schools can be managed by one central office, yet much smaller charters like Pointe Education Services with four schools and the Arizona School for the Arts with a single campus run their schools with half of the money per pupil as BASIS.

Where does BASIS.ed Inc. money go? It depends on how BASIS cooks the books in a given year.

BASIS.ed Inc. is very creative when it comes to reporting spending, especially administrative spending. Administrative spending is required to be reported in three categories that are distinct and well defined by the Uniform System of Financial Records that guides all Arizona schools:General Administration—Activities concerned with establishing and administering policy for operating the school, including governing board services, executive administration services, and lobbying.School Administration—Activities concerned with overall administrative responsibility for a particular campus, including office of the principal services.Central Services—Activities that support other administrative and instructional functions, including fiscal services; purchasing; warehousing and distributing services; printing, publishing, and duplicating services; planning, research, development, and evaluation services; public information services; personnel services; and administrative technology services.

BASIS, it seems, reports administrative spending however they see fit. In 2015 BASIS spent $1,346/pupil on general administration but in 2017 that number dropped to $718/pupil. School administration went from $662/pupil in 2015 to $1,444 in 2017. It is not possible that half of the general administration costs for BASIS disappeared or for school administration to suddenly increase by $782/pupil. BASIS Inc. simply moved money around to meet corporate needs. (See Appendix 1)

This creative record keeping was blatant between 2016 and 2017. Existing BASIS schools total administrative costs went up nearly $10 million between 2016 and 2017. School administrative salaries nearly doubled, increasing by $5 million between 2016-17.

Did the 16 existing BASIS schools suddenly cost $10 million more to operate in 2017? Or did BASIS.ed Inc. need an infusion of cash to keep their charter empire afloat?

Classroom spending and parent donations:BASIS did save money in one area in 2017 – the classroom. Per pupil spending for classroom instruction decreased by $299 between 2016 and 2017.

BASIS parents are required to pay fees for all activities, materials and supplies. Parents are also asked to donate $1,500/year to help pay teacher salaries. Fees and donations to existing BASIS schools increased by nearly $2 million in 2017 to a total of $13 million.

BASIS parents should question how it is possible to increase donations by $2 million but cut classroom spending by $300/pupil while increasing BASIS.ed. Inc.’s profits by $10 million.

Conclusions:

Refinancing costs: BASIS executives claim the expensive refinancing of debt will create lower overall mortgage payments in the future. But, as every homeowner knows, refinancing also allows equity to be converted into cash. It would be very interesting to be able to track how much of BASIS nearly $300 million in real estate loans was actually spent building and furnishing the schools in Arizona….and how much is going into the coffers of BASIS.ed Inc.

Management expenditures: BASIS Schools are cutting classroom spending and borrowing money to keep afloat financially while paying themselves $10 million more for management expenses than similar sized Legacy Traditional Academies. Competitor Great Hearts Academies has made $26 million in positive assets (non-profits do not post “profits”) while BASIS has lost $32 million since 2012. Arizona non-profit BASIS Schools are losing money at a record pace and are cutting back on classroom expenditures while for-profit BASIS ed Inc. is siphoning off tens of millions of dollars - perhaps to pay executive salaries and to finance the world-wide expansion of the BASIS.ed Inc. real estate empire.

Why does it matter how BASIS spends tax money? It should be important to BASIS parents that are being coerced into spending $13 million subsidizing BASIS.ed Inc. profits instead of seeing their contributions going to their child’s classroom. And it should be important to policy makers that charter schools are being funded in a way that allows BASIS to divert $10 million to corporate profits instead of the classroom in a single year.

But since the Arizona State Board for Charter Schools does not monitor how charter schools spend tax dollars, they are probably going to buy the BASIS.ed Inc. argument that the $32 million in losses are just temporary bookkeeping problems caused by their sincere desire to lower mortgage payments to save tax money.

Are public funds being misappropriated? The Arizona State Board for Charter Schools should direct the Auditor General to conduct a complete audit of the $278 million in real estate loans and the $28 million in administrative costs that seem to be fueling the expansion of BASIS.ed Inc. (and perhaps the descent of BASIS Schools into bankruptcy?). We all know that will not happen.

Nevertheless, BASIS qualifies as one of the worst charter companies in Arizona in terms of utilizing public funds appropriately.

The Worst Charter Schools in Arizona 2017 – Part 1The Charter Board’s five “Best Performers” are among the worst schools in the state

The Arizona Republic March 1, 2018 article “Dozens of Arizona charter schools are at risk of closing due to financial woes” by Agnel Philip and Ricardo Cano revealed that 40 charter schools are in serious financial difficulty and could be in danger of closing. The authors listed the five “top performers” according to the Charter Board - charter holders that had the most days of financial reserves and met all the Arizona State Board for Charter Schools’ financial standards:Deer Valley Charter SchoolAIBT Charter SchoolEducational Options Foundation, Kestrel SchoolsJames Sandoval Prep

The Charter Board did not examine how these charter owners came to be so flush with cash. While the five charters are certainly not in danger of closing, they are among the worst examples in the state of charter owners misusing of public funds. Here is how the “top performers” actually spent your tax dollars:Deer Valley Charter SchoolThe Charter Board concurred that Deer Valley Charter School (DVCS) is a “top performer” and renewed their charter for an additional 20 years in 2015. Instead, it is one of the most wasteful schools in Arizona. DVCS had only 18 students in 2017 and has had an average enrollment of 23 students since 2012. It costs taxpayer over $30,000/pupil ($35,297 in 2017) to operate DVCS. While enrollment has been stagnant since 2012, administrative costs have doubled to over $200,000/ year. The director of the school, Barbara Dalicandro, made $97,000 last year while total teacher salaries were $149,000. DVCS owners have amassed over $1 million in cash assets…serving 23 students a year.Deer Valley Academy’s enrollment reported on the annual October 1 Enrollment Report and in the Superintendent’s Annual Report ranged from 18 to 29 students 2012-2017. The school was funded based on an average daily membership between 80 to 90 students since 2012. We have no idea which enrollment data is accurate. We do know that only 11 students took the 2017 AZ Merit math test and only 2 passed.Public school critics constantly complain that there should be consolidation of Phoenix elementary schools to save tax funds. Over half of all Arizona charter schools have less than 300 students. In the charter world, ridiculously small schools are allowed (and encouraged), wasting millions each year. DVCS is a perfect example.Schools owned by Steven F. DurandII

Amazingly, the other four “top performing” charter schools are all owned by Steven F. Durand II. Mr. Durand’s four schools brought in $8,966,591 in 2017 but he only spent half of that ($4,547,311) running the schools. The rest went into the bank where Mr. Durand’s non-profit has amassed over $16 million in cash assets since 2012.

Only 11% of the schools’ revenue found its way into the classroom since 2012 and administrative spending exceeded classroom spending by over $2.7 million over that time period.

How is it possible to run a school spending half of its revenue? Two words: Online instruction.

For example, EdOptions High School is located in a large room full of computers at 2150 E Southern. Kestrel Schools (Valley Prep Academy) is also located at 2150 E Southern in a large room of computers. Why have two separate charters in one building? Simple - to make more money.

EdOptions also has 13 “Learning Centers” in metro Phoenix, Nogales, Alpine, Quartzsite, Cottonwood, Prescott, and Prescott Valley. Despite having 15 locations, EdOptions and Kestrel Schools had combined classroom expenditures (teacher and teacher aid salaries, benefits and instructional supplies) of just $368,000, out of a total budget of $5,747,000. Administrative costs for the two schools were nearly three times as much - over $981,000.

The four schools owned by Mr. Durand expended $785,000 more on administration than in the classroom just in 2017. Since 2012, Durand’s schools have spent $2.7 million more on administration than in the classroom…and put $16 million in the bank.

Mr. Durand has been using the $16 million to buy real estate in cash transactions:- 7033 W Cactus Rd. - a large church property purchased 1/28/2016 for $1,1300,00- 67th Ave. and Avenida del Sol - a vacant lot bought 2/1/2017 for $200,000- 6710 W. Calle Lejos, a 5500 square foot house with a six-car garage purchased 3/29/17 for $1,350,000. (See below)

The state of Arizona paid for this luxury estate and the Charter Board asked no questions – Kestrel and James Sandoval were renewed for 20 years in 2015.

The failure of the Charter Board to review charter spending is allowing waste and fraud on a massive scale. If these are the top five financial performing charter schools in Arizona, imagine what untold horror stories await us if the Auditor general was ever allowed to monitor charter schools.

The Charter Board’s Financial Framework does absolutely nothing to protect taxpayers from the waste of public funds. Their “top performing” schools make that quite clear.

The Consequences of Not Monitoring Charter Spending:The Charter Board Finally Closes Starshine Academy Only After A Bankruptcy Court Discloses FraudThe Attorney General Needs to Sanction the Charter Board for Failing to Protect Public Funds. (full report)

On February 22, 2018 Arizonans for Charter School Accountability released a report on Starshine Academy calling out the Arizona State Board for Charter Schools for failing to close the charter after years of obvious waste and fraud.(The February 22 report is available here)

The Charter Board held a surprise special meeting on March 20, 2018 and voted unanimously to begin the revocation process for Starshine’s charter. This sudden change in heart came after the U.S. Bankruptcy Court notified the Board the day before that Starshine should be moved out of Chapter 11 bankruptcy and be closed “in order to stem the tide of state assets being squandered for Ms. McCarty’s (Starshine owner) personal gain.” Board President Kathy Senseman commented after the vote to close Starshine “This is the most egregious case I have ever read about a charter school so I am very happy that we have a vote to revoke the charter of Starshine Academy.” (Transcript of the March 20th meeting is at: https://asbcs.az.gov/board-staff-information/meeting-dates-materials)

Nonsense. The Board knew in 2012 that Starshine was non-compliant in financial matters and had poor academic achievement for several years but they renewed Starshine’s charter for 20 years. The next year Starshine received a $12 million bond loan to build new facilities but students never appeared. Starshine now has just 90 students, massive mortgage payments they can’t pay ($800,000/year) and administration costs that have doubled - while classroom spending has declined by $1,247 since 2012.

The Charter Board did not take action until forced to address the issue by the Bankruptcy Courts. The waste and fraud of millions since 2012 by Starshine owner Trish McCarty is the direct result of the Charter Board’s failure to monitor charter spending.

Spotting possible fraud isn’t that hard. The Annual Financial Reports submitted by all charters clearly showed huge, on-going financial mismanagement at the Starshine Academy. Arizonans for Charter School Accountability identified them immediately by looking at how much all charters spent on classroom instruction, administration, and facilities. There were 17 charters in 2017 that spent more on both administration and facilities individually than in the classroom. The Bradley Academy of Excellence was one of them. The owner, Daniel Hughes, skipped town in January 2018 after stealing millions in tax funds. Despite knowledge that Bradley has massive expenditures to multiple companies owned by Hughes in 2016, the Charter Board did not investigate. Instead, they renewed the charter for the Bradley Academy in June 2017 for an additional 20 years.

The Starshine Academy is also on the list and we identified them as the charter most in need of closing a month before the Charter Board was forced to do so. If the Charter Board would just look at charter spending they would have seen:

Declining enrollment and massive losses: Starshine’s enrollment declined 30% since 2011 to only 169 students in 2017. The charter has lost nearly $3 million since 2011. (All data that follows can be found in the Annual Financial Reports available at: http://www.ade.az.gov/Districts/EntitySelection.asp)

Administration spending has soared to among the highest in the state: The average charter school spends about $1,500/pupil on administration (public districts spend about $860/pupil). Starshine spent double the charter average, $3,133/pupil in 2017

Mortgage payments on a $12 million loan diverted $878,000/year of tax funds into empty buildings:

Expenditures in the classroom decline dramatically to pay for administration and facilities over-spending: Classroom spending, especially teacher salaries have plunged since 2012. Per-pupil spending on instructional salaries fell by 30% and overall classroom spending decreased by $1,247/pupil since 2012.

For example: Rental agreement in the amount of $713.41 for car rental in New Mexico, which indicates the car was picked up on August 8, 2017 and returned on August 13, 2017. This is acceptable support documentation, but this is not an expense of the school.  Santa Fe Walmart receipt dated August 12, 2017 in the amount of $131.45. Receipt identifies specific items purchased, but this is not an expense of the school (see “Legitimacy of Calendar Entries” subsection below).

 ATM receipt from the Buffalo Thunder Casino in Santa Fe. While the August 13, 2017 receipt indicates $60.00 was withdrawn and that there was an ATM fee of $3.50, no documentation was provided to support what was purchased with the $60.00.  Two receipts on one sheet of paper. The way the copy was made it is impossible to determine what either receipt is for and at what establishment the purchases occurred. For the top receipt, it is clear that the purchase in the amount of $41.40 occurred on August 9, 2017. This amount did not correspond to any items on the list provided during the February 26, 2018 site visit or to any items around that date on StarShine’s records. Further, the last 4 digits of the card used for the top receipt did not correspond to known cards used by StarShine.Again, Too Little Too Late: The Charter Board moved to revoke the Starshine charter based on this investigation. But an investigation into inappropriate spending practices at Starshine Academy should have taken place before the school’s charter was renewed in 2012. An investigation should have been made by the Pima Industrial Authority that granted a $12 million loan to a company that consistantly failed to pay their bills. An investigation should have been made each year since 2012 as administration and facilities spending soared.The Charter Board did nothing until they absolutely had to when forced by the Federal Bankruptcy Court.We will again file a complaint with the Arizona Attorney General contending that the Arizona State Board for Charter Schools is facilitating inappropriate expenditures of public funds by not monitoring charter spending and by not providing mechanisms in which to detect fraud.The Bradley Academy and the Starshine Academy are the tip of the charter fraud iceberg in Arizona. If the Charter Board would make the same investigation into expenditures at all charter schools that spend more on either administration or facilities than in the classroom there are likely dozens of schools that are also making purchases that benefit the owner rather than the school.It is not just that the Charter Board is not being pro-active in detecting fraudulent expenditures of tax money. The Charter Board turns a blind eye even when confronted by obvious mismanagement, as in the case of the Bradley Academy.The Board’s claim that they are powerless to close badly run charter schools is simply false. The Board is authorized to investigate charter schools and has the power to revoke charters that are mismanaging public funds – it is written into each charter contract: (a sample charter contract can be found at: https://asbcs.az.gov/applicant-resources)Charter Contract Section 17:

Termination or Non-Renewal of the Charter: The Arizona State Board for Charter Schools may revoke or not renew the Charter for any material breach of the Charter and/or violation of state, federal or local laws, ordinances or rules or regulations; for conditions which threaten the health, safety, or welfare of the students or staff of the school or of the general public; or as provided by law.

Charter Contract Section 14:

The Charter Holder shall pay debts as they fall due or in the usual course of business.

The Charter Holder shall not commit or engage in gross incompetence or systematic and egregious mismanagement of the school’s finances or financial records.

It is time for the Charter Board to become a regulatory agency and not a rubber-stamp for the charter industry. The Attorney General would not allow any other state agency to act with such disregard for the waste of millions of tax dollars each year. Arizona can’t afford to pay teachers the least in the country while throwing away millions in education funds because the Charter Board refuses to monitor charter school spending.

News Release February 28, 2018Phoenix, Arizona

BASIS Administrative Costs Soar as Classroom Spending Declines in 2017BASIS Lost $3.1 Million in 2017 adding to $23 Million in Red Ink(But parents still kicked in $13 million in fees and donations)(Full report)BASIS Schools is one of the largest charter chains in Arizona with over 12, 000 students, yet they spend 50% more to run their schools than the average charter and three times more than the average public district. Size should increase efficiency, but as BASIS grows nationally their administrative spending has sky rocketed - while classroom spending has gone down.

BASIS Inc., the for-profit company that manages all BASIS schools, spent $28 million on administration in 2017 as BASIS continued to lose money, posting a $3.1 million loss in 2017 adding to the $23 million deficit in assets reported in 2016.

Instead of cutting administrative costs, BASIS increased spending for such things as management fees, executive salaries and expansion by $7.8 million in 2017 to $2281/pupil - $645/pupil more than in 2016. BASIS Scottsdale spent an unbelievable $1.7 million for school administration alone – enough to pay 14 principals $100,000 each with benefits. The only reduction in spending seems to be in the classroom where regular classroom instruction was cut in 2017 by $262/pupil.

Legacy Traditional Academy has a similar number of students as BASIS yet spends $10 million less running their schools. Larger charter organizations, like BASIS, should be able to operate more efficiently because all schools can be managed by one central office, yet much smaller charters like Pointe Education Services with four schools and the Arizona School for the Arts with a single campus run their schools with half of the money per pupil as BASIS

BASIS parents are told that BASIS Inc. must charge fees for everything, including workbooks and class materials, because they are underfunded by the state. They also ask parents to donate $1500 annually to help the beleaguered BASIS Inc. pay teacher salaries. Last year Arizona BASIS parents paid $13 million to BASIS Inc., nearly $2 million more in fees and donations at existing schools than in 2016.

It is likely that the additional millions parents are forced to fork out is going to pay lavish salaries to BASIS Inc. owner Michael Brock and his corporate executives and is helping finance the world-wide expansion of the BASIS empire. BASIS now has charter schools in Texas, Washington D.C., and Louisiana in addition to five private BASIS schools in New York City, California, and Virginia. In 2015 BASIS opened the BASIS International School Shenzhen in China. BASIS parents are not donating to support their children’s education – they are subsidizing the corporate profits of a company that is drowning in debt bent on the world-wide expansion of BASIS Inc. and the BASIS private school network.

Jim Hall, founder of Arizonans for Charter School Accountability, noted, “Imagine if Scottsdale Unified increased administrative spending by $645/pupil while cutting classroom spending by $262/pupil. Or if Scottsdale Unified spent $2,200/pupil for administration while the average district spends $800/pupil. It is simply unthinkable…yet BASIS Scottsdale, serving the same Scottsdale community, spent $1.7 million to run a single school office without question - and made the decision secretly in the board room of BASIS Inc.”

Hall continued, “The fact that one school in a neighborhood is accountable for the expenditure of public funds and another is not, simply because they are a for-profit business, is not acceptable. It is also unacceptable that public districts make all decisions in public meetings while charters are allowed to hide all spending decisions in corporate board rooms. Separate is not equal. There should be the same transparency for all expenditures of public education funds in Arizona schools.”

The Charter Board’s lack of oversight resulted in millions being stolen by the Bradley Academy: The Starshine Academy is next. (Full Report)

The closing of the Bradley Academy in Goodyear on January 30, 2018 shines a light on the lack of oversight provided by the charter board that allowed the Bradley CEO Daniel Hughes, to abscond with perhaps millions of tax dollars.

The Bradley 2016 Annual Financial Report clearly showed that Mr. Hughes was spending $1.8 million on management of the school of 411 students while cutting teacher salaries since 2011. Hughes paid four companies he owned over half a million dollars and had a personal revolving fund of over $470,000. The Arizona State Board for Charter Schools did not consider this data when they renewed the Bradley Charter in June 2017. On January 30, 2018 Daniel Hughes closed the school and skipped town.

The Bradley Academy is not an isolated example of the lack of oversight by the Charter Board. Arizonans for Charter School Accountability has identified 22 other charter schools in Arizona that have the same red flags as the Bradley Academy, namely the lack of spending for teacher salaries and classroom instruction compared to administrative spending and expenditures on facilities. 23 Arizona charter schools achieved in 2017 what would be unimaginable in a public district – they spent more individually on both administration and their facilities than on all classroom instruction. (The full report including the list of charter holders is at azcsa.org)

Each of the 23 charter holders needs to be investigated to determine why classroom spending is the lowest of all schools in the state. The Starshine Academy stands out as another charter in danger of closing that has cost taxpayers millions –because the Charter Board has failed to do their job.

The Star Shine Academy

The Starshine Academy is a different story than the Bradley Academy. The Charter Board actually voted on May 12, 2012 to not renew the Starshine charter based upon both poor academic achievement and financial mismanagement. Starshine had failed to meet academic performance standards for five years and had serious mismanagement issues – failure to make State Retirement payments, failure to pay state and federal withholding, not following fingerprinting laws, inability to pay vendors, etc. The Charter Board voted unanimous to deny them a new charter.

Starshine Academy owner Trish McCarty requested a hearing to dispute the Board Decision. After a day of testimony before the Arizona Office of Administrative Hearings, the hearing was adjourned and the Charter Board reconvened to reexamine the charter renewal for Starshine, citing “legal issues that could pose a problem for the Board”. The Charter Board reversed their unanimous denial and approved the renewal with one “no” vote and two abstentions.

The following year, Starshine received a $12 million bond from the Pima Industrial Authority to purchase their existing campus, remodel it, purchase a lot across the street to build a sports field, and build over $ 4 million worth of new facilities. Starshine did not mention any of the concerns on their bond application expressed by the Charter Board when they voted to deny renewal. Starshine even falsely stated that” the school met annual measureable objectives for student achievement in 2011-12.

Unlike “Field of Dreams”, they built it but students did not magically appear. Starshine’s enrollment was projected on the bond application to increase to 600 students for 2014. Only 428 showed up. Enrollment has continued to drop until there are just 93 students remaining as on the 100th day 2018. The $800,000 mortgage payments for the $12 million loan have resulted in massive deficits every year since, totaling over $3 million since 2013. Starshine’s spent over $1 million a year more for their facilities after 2013…while enrollment fell.

Starshine filed for bankruptcy in December 2016 but they are still in operation today.

The high mortgage payments have taken their toll on spending for classroom instruction; per pupil expenditures are $1,247 less in 2017 as they were in 2012. But the belt tightening doesn’t extend to management expenses that have doubled since 2012.

Conclusion:Starshine Academy had a long history of mismanagement and poor academic performance and Charter Board rightly denied their renewal in 2012. Unknown “legal problems” for the Board persueded them to renew the charter. Despite having only 233 students and a track record of mismanagement, the Pima Industrial Authority gave the school $12 million to build a brand new school designed to accommodate 1000 students, saddling Arizona taxpayers with $ 1million per year in addition facility expenses for the school.

The Charter Board failed to prevent this mismanaged non-profit from blindly building a showcase facility. The Pima Industrial Authority failed to provide due diligence in vetting Starshine, leaving bond holders at risk, and allowing Starshine to force Arizona taxpayer to fund a $800,000/year mortgage for a school of 100 students.

The question is: Does this constitute the misappropriation of public funds? If so, what responsibility do state agencies have in detecting and preventing such fraud? The Charter Board knew Strashine should not be allowed to be in business but granted them a 20 year renewal anyway. The Board needs to close Starshine Academy to stop the $1 million a year real estate scam to buy luxury facilities they don’t need.

The Pima Industrial Authority apparently approves bonds to any investor group willing to take a risk on charter schools, regardless of the consequences to taxpayers and children. PIA must work with the Charter Board in the bond process to assure that granting a charter construction bond is a responsible use of public funds.

Both agencies failed to protect the public from the mismanagement of the Starshine Academy. The Attorney General needs to hold them both accountable.Complaint filed with the Arizona Attorney General on February 13, 2017 re: The inability of the Arizona State Board for Charter Schools to identify the misappropriation of public funds by charter schools and provide appropriate regulatory authority to protect the public’s interests.

The Arizona State Board for Charter Schools (ASBCS) does not track charter school expenditures in any way, including not using charter Annual Financial Reports in their oversight. As a result, the Board is unable to detect waste and fraud of public funds by charter owners because they have no idea what expenditures are being made.The Board voted to renew the charter for the now defunct Bradley Academy of Excellence on June 12, 2017 without knowledge of expenditures of $1.8 million for administration for a school of 441 students, $575,000 in purchases from four companies CEO Daniel Hughes formed to sell goods and services to the school and $477,000 in reimbursements to Hughes involving a "revolving fund" Hughes set up. None of these expenditures were reported to the Charter Board by the Charter Board Staff in the renewal packet. As a result, when Hughes was questioned by Board members on June 12, 2017, none of these expenditures of public funds were discussed.

ASBCS staff was aware of the possibly fraudulent expenditures six months before the renewal meeting in January 2017 but did not contact the Auditor General to assist in a financial investigation of the Bradley Academy and failed to report possible felonies to the Attorney General’s Office until October 2017, seven months after ASBCS renewed the school’s charter for 20 years.

The ASBCS unwillingness to review charter owner’s expenditures facilitates fraud. The Board is a state agency that is not protecting the public interest by assuring that public funds are not being misappropriated. A complete investigation into the financial fraud committed by Daniel Hughes will reveal just how little oversight the Charter Board provided.

We are asking the Attorney General to investigate and evaluate the effectiveness of financial oversight provided by ASBCS to ensure public funds are being spent appropriately. Secondly, we would like an Attorney General ruling explaining why expenditures of public funds by public districts that would be considered fraudulent by the Auditor General would not be fraudulent if committed by a charter school, beyond charter exemptions from procurement laws.

The Arizona State Board for Charter Schools Renewed the Charter for the Defunct Bradley Academy for 20 Years… But Never Questioned Spending Practices that Netted CEO Daniel Hughes Millions

Bradley CEO Daniel Hughes took control of the Bradley Academy in November 2014 and increased spending for supplies by $235,000 and administration costs by $1.4 million in 2016 - purchasing $575,000 in goods and services from 4 for-profit companies he founded just to sell to Bradley Academy. Hughes had a personal revolving charge account at the school and was reimbursed over $477,000. (See the full report at azcsa.org)

The Bradley Academy closed its doors on January 30, 2018 leaving hundreds of students without a school to attend. The school was in severe financial difficulty having defaulted on two lease contracts and posted a $3.3 million deficit in assets at the end of 2016. Bradley was a “D” rated school in 2014 and fared no better on the 2017 AZ Merit test with only 13% passing in English and 7% passing the test in math.

The staff of the Arizona State Board for Charter Schools had access to all of this information, yet instead of reporting Daniel Hughes to the Attorney General for suspected fraud, the Charter Board unanimously voted to renew the charter contract for the Bradley Academy for 20 years on June12, 2017. The school was closed six months later with Hughes skipping town.

Ask yourself this: What would the Auditor General/Attorney General do if the neighborhood public school hired a new principal and he:

Spent 5 times more on administration in 2016 compared to the year before he took over

Spent $1.8 million to run a single school of 441 students

Bought $574,000 worth of goods and services from four separate companies he and his wife formed just to sell to the school

Created a revolving fund to buy unspecified goods and services for the school as he saw fit to the tune of $477,000.

The answer is simple: The school leader would go to jail and the public outcry would be loud and sustained.

Instead of investigating the abuses that occurred in 2016, the Board unanimously approved the renewal of the charter contract for the Bradley Academy for an additional twenty years. The Board never mentioned the excessive expenditures or expressed any concern about the self-dealing or the “revolving fund” purchases. They never wondered about the lease defaults. Would Bradley have buildings to hold classes in? The Board didn’t ask. Their only concerns revolved around an issue where Hughes had failed to notify the Charter Board about board member changes and whether all of the paperwork was in place setting up the revolving fund.

The questions asked by the Charter Board prior to unanimously approving the renewal of the Bradley charter did not address the millions going into Daniel Hughes pocket. Instead, they asked about:

The school’s dismal test scores

The school’s failure to update the Board about school board members,

Expected 2017-18 enrollment

Expected major purchases planned for 2017-18

A question asking to explain 3rd party transactions not being adequately disclosed and retroactive dating of finance documents. (Hughes explained it was the fault of the previous school auditor)

A statement about the need for a diverse school board

That’s it. Three Board members expressed concerns but wished Hughes well. The renewal was unanimously approved. (The complete transcript of Board questions and a synopsis of responses made by Daniel Hughes are at the end of the report. The audio of the June 12, 2017 Charter Board Meeting is available at:https://drive.google.com/file/d/0B3_qSOrM2JssUTU2Y0JsVXp1UjQ/view

The Charter Board’s only concern with Hughes four companies or his use of a personal revolving fund was that he didn’t have the paperwork properly in place setting them up. The propriety of this self-dealing was never questioned. The Board staff provided no information to the Board regarding the amounts involved in these transactions - over $1 million. This information was readily available in the Bradley Academy annual audit submitted in January 2017 available at: http://online.asbcs.az.gov/dms/browse/271

The staff also failed to tell the Board about the vast sums Hughes spent on supplies and administration. The spending information was available in Bradley’s annual financial report submitted in October 2017. Unfortunately the Board staff does not read the annual financial reports (an email attesting to this is in the Appendix). The fact that Hughes spent $1.8 million to run a school of 411 students in 2016 was not important enough to be included in the staff packet to the Board.The Bradley Academy 2017 Annual Financial Report can be found at: http://www.ade.az.gov/schoolfinance/forms/leaquery/submittedfiles.aspx

The Charter Board has absolutely not mechanisms in place to detect fraud, even in obvious examples like the Bradley Academy. Self-dealing is so commonplace that it is not addressed by the Board and the Charter Board staff does not examine charter expenditures on the Annual Financial Reports. The Board staff did not inform the Board about all of the funds Daniel Hughes was personally spending to pay for unspecified supplies and administrative fees…money he was diverting to his own pocket. How can the Charter Board determine if public funds are being misappropriated if they don’t know how, and where, charters are spending tax dollars?

The Attorney General must examine not only every aspect of the financial dealings of Daniel Hughes and the Bradley Academy but also needs to investigate the failure of the Charter Board to provide any accountability for the misappropriation of public funds. The Arizona State Board for Charter Schools is unable, or unwilling, to assure that $1.5 billion in tax revenue provided charter schools isn’t being stolen.

Appendix

1. Email from the Charter Board regarding the use of Annual Financial Reports in charter oversight. (Bold added for emphasis)

On Thu, Nov 13, 2014 at 3:51 PM, Bianca Ulibarri <Bianca.Ulibarri@asbcs.az.gov> wrote:Dear Mr. Hall:In accordance with our complaint processes, the information you provided to this office on October 7 and 27 regarding American Charter Schools Foundation and Kaizen Education Foundation were forwarded to the respective entities for a response. The responses to each are included with this correspondence. Additionally, on November 4, 2014, this office received your email requesting a response to questions you posed to the Office of the Auditor General (OAG), based on what was provided as the OAG’s response to an earlier email that same date. The following is provided: The Board, in its oversight responsibilities, holds charter holders accountable for the timely submission of AFRs and tracks the timely submission of budgets through the compliance portion of the annual audit. The Board does not utilize the information contained in those documents in its oversight; rather, the Board has adopted a Financial Performance Framework and an Operational Performance Framework for its purposes in monitoring the charter holders in its portfolio. More detail regarding these documents is provided below….

Bradley Academy performed below the level of all schools within a 5 mile radius

The school was found out of compliance due to governing board members not being aligned with names on file with the Charter Board

The charter holder missed the deadline to correct the problem

The motion sample included in Board member packets included withholding 10% of state apportionment until the governing board issue is resolved

1:36:53 Board Member: “So, it seems it did not go so well getting all of your submissions in order so perhaps you can tell us why you didn’t get all of these things accomplished. “ (Hughes explained they did not know about the Board issue and were changing the corporate board to include more than just himself as the sole board member.)

1:40:29 Board Member: Talk to me a little about your “D” school in 2014. It doesn’t look like much has changed on the 2017 AZ Merit scores -13% passed on the ELA and 7% passed math. These are pretty dismal numbers for passing. Tell me a little bit about what’s going on there. T doesn’t seem like there has been much change in multiple years in what you are doing with those students.” (Hughes explained that 67% of students are transported from Avondale, 92% are free/reduced lunch, and the majority of students are Hispanic and Black. He tells about the founder’s attachment with this population and how Hughes grew up in poverty as well)

1:45 Board Member: “Sounds like these are excuses for why your students aren’t doing well. We see many examples of schools with the exact same demographics that are knocking it out of the park so it sounds like a lot of excuses why your students aren’t doing well...because of their skin color or what their parents make. While I appreciate for having a heart for that…I also want children to have a good education. It looks like you are busing kids in and not educating them – and you haven’t been doing that since 2014. I think you were a “C” school before that. So I see an unfortunate trend and what you are telling me right now is …I don’t have a lot of confidence that that is going to change because what I am hearing is everything that is wrong with your students and I didn’t hear much about what is right with your school…so could you maybe pivot here and talk to me about what you are going to be doing right with those kids…talking about skin color kind of falls on deaf ears on me and it not about what are doing for those students. I haven’t heard you say anything about that yet.” (Hughes describes Title 1, before and after school programs 3 meals a day offered, new curriculum, increased teacher in-service, new computer lab, ½ teachers replaced with certified, highly qualified teachers, and reinvented the school from the ground up.)

1:55 Board Member: “So how does enrollment look for next year?” (Hughes says waiting list has 84 students. Added school has added $120,000 in new curriculum and $150,000 for technology so 2017-18 should show a larger operating net.)

1:56 Board Member: “Any big expenditures for the coming year?” (Hughes responds none budgeted. Successfully settled previous litigation and now have a new auditor and have a new plan to meet all financial expectations except fixed coverage because of lease problems. New 5-year agreement with landlord, Charter Capital Solutions, should pay off lease payments owed and give $400,000 in liquidity.)

1:59:25 Board Member: “Reading the staff’s report particularly with the “going concern” issue and a number of issues related to governance – 3rd party transactions not being adequately disclosed and it looks like retroactive dating of finance documents. Will you address what is going on? It seems like you have a very very tenuous financial situation. These questions are being raised from the auditor’s report. (Hughes did not know about board concerns until recently. Now has a new auditor and he says the concerns expressed by the 2016 audit were not concerns he would have. The board member issue is being fixed. All 3rd party transactions were approved by the school board. School was in financial difficulty in early 2016 school year so he and his wife used their charge cards to buy school supplies to be reimbursed by the school. The new auditor told him mid-year to create a revolving credit line with market rate interest and have it apply back to the first of the year. The auditor told him after the fact approval is common.)

2:06:38 Board Member: “One concern I have is the failure to have a diverse board and it leads to non-compliance on GAP, a disinterested director, and compensation issues. I urge you as you go forward to making that change.” (Hughes responded changing board and corporate articles of incorporation to allow more than one board member. He introduces attorney Ralph Harris who explains school is doing very very well and is ready to “take flight”.)

2:10:39 Staff - explains that Bradley Academy Inc. articles of incorporation did not match documents filed at the Charter Board.

2:11:18 Board Member: “I wish we had some other choices in how we have to deal with this school but, unfortunately because of circumstances beyond our control we don’t have much choice in how to determine the future of the school for renewal. It seems like you have done a lot of good work – I hope it results in really good test scores so you are not a “D” or “F” school and are not back here before us. I have grave concerns that this is not going to be the case but I sincerely hope that….” (Hughes responded about Galileo testing showing improvement.)

2:14 Board Member: “I sincerely hope the things showed today are moving the school in the right direction so we don’t see you back here in short order. Is there a motion?

2:14:30 “I move to approve the charter renewal application packet and grant a renewal contract to Bradley Academy Inc. I further move to find Bradley Academy in non-compliance with state law and its charter contract for its failure to request approval to make changes to its school governing body withholding 10% of charter monthly state apportionment until it substantially completes the governing board request and submits it to the Board for approval”

2:15:32 Mendoza: I’d like to comment. I share a lot of the story of your personal experience. I too run a school with a very similar mission so I very much support that and wish you a lot of success because the kids deserve better than what the results have been so far. With that, yes.”

2:16:13 Swanson: “What I see here is pretty much downward trends in a lot of categories. I’m concerned about the financial relationships in the school. The academic performance is troubling – we are bound by the academic framework. I do wish you well and it is a reluctant yes.”

2:16:50 Motion passes unanimously

How to Loot a Failing Charter School:Bradley Academy closes after the owners possibly stole millions… while the Charter Board stood idly by.(Full Report)

The Bradley Academy suddenly closed its doors January 30th leaving parents scrambling to enroll their children in a new school mid-year. The closure wasn’t a surprise to the Arizona State Board for Charter Schools – they knew about possible fraud at the school for nearly a year without reporting it to the Attorney general.

The Charter Board knew that Bradley was in default, for the second time, on lease payments to the owner of their facilities. The Charter Board was completely aware that Bradley CEO Daniel Hughes had spent hundreds of thousands of dollars in 2016 to benefit Bradley executives rather than deal with multiple defaults with creditors. Bradley’s expenditures in 2016 were obvious and blatant:

Hughes formed four new for-profit companies and “hired” them to provide over $575,000 for undisclosed “supplies and services”.

Hughes paid off loans from former CEO Tanya Burston, her husband and her now deceased mother totaling $101,795

Current school board members were paid for the first time – two board members were paid $58,975 in 2016. Salary payments to Bradley Academy non-profit board members increased by $100,000 in 2016.

Daniel Hughes started a “revolving fund” where he was able to personal make purchases of supplies and services and then be reimbursed by the school. Hughes made purchases totaling $477,108 for unaccounted supplies and services for which he was reimbursed.

Bradley listed expenditures of $101,880 for “food” on their IRS 2016 990 submission.

The Bradley Academy’s enrollment has remained stagnant from 2012-2017, enrolling between 380-522 students each year. Teacher salaries showed a sharp decline however – Bradley teachers were paid $200,000 less in 2017 than in 2012 with similar student enrollment.

While expenditures on classroom salaries plummeted, spending for supplies and administration soared 2015-2017. Bradley averaged $85,000 annually for all supplies 2012-14. In 2015 supply expenditures tripled to $262,157 and continued to increase in 2016 and 2017. Administrative costs also nearly tripled 2015-17 compare with the three previous years.

The Bradley Academy spent $3.6 million more in total expenditures for supplies and administration the last three years than they did 2012-2014 - $662,000 more for all supplies and $2.7 million more for administration. The $662,000 in supplies is now the property of Daniel Hughes. The Bradley Academy was $3.3 million in the red by 2016. It is obvious what caused the shortfall.

Instead of focusing on resolving the schools debt problem, Bradley’s expenditures for supplies and management actually increased in 2017. Did this huge increase in spending for supplies and administration raise any red flags with the Charter Board? The Board doesn’t review charter spending so they had no way of knowing. The Charter Board simply warned Bradley about concerns with dealing with related parties, and utilizing revolving funds. Daniel Hughes was able to suck out an unknown amount of cash from the school this year before he suddenly closed the school in January 2018, a year after the Charter Board became aware of Hughes practices.

Finally in October 2017 the Charter Boards informed the Attorney General about possible at fraud at Bradley Academy, ten months after they received the audit detailing the unprecedented self-deal by Daniel Hughes. The Charter Board does not track charter expenditures (as we did in this report) so they are likely unaware of the huge increases in spending for supplies and administration the last three years. Pity.

The Arizona State Board for Charter Schools has no mechanisms in place to detect fraud and the misappropriation of state funds. The State Auditor General certainly pursues state agencies that squander tax dollars as we have seen by the reports about Scottsdale Unified’s hiring of their architect. The Auditor is not allowed to even review charter spending – by law.

The result?Daniel Hughes and the board members of the Bradley Academy are rich…and hundreds of children have no school to attend. The Charter Board needs to be held accountable for this tragedy.

The Superintendent’s Annual Report for 2017 Is OutAnd It Is All Wrong… Again

We recently reported how the Arizona Department of Education Superintendent’s Annual Report has had serious errors and omissions since 2009 – charters failing to report numbers of teachers hired, incorrect teacher salary totals, and under reporting of administrative costs. (FULL REPORT)

The 2017 Superintendent’s Report was released on January 19th – four days after the January 15 publication date specified by statute. ADE corrected the failures from 2009-2016 to include non certified teacher salaries in the summaries in Volume 2 and this year only 4 charters failed to report the numbers of teachers employed and 5 did not report any teacher salaries - much better than past years where over 30 charters failed to report data.

But 61 charters did not report any investments in capital assets – land, buildings, current construction, and equipment owned. The the directions given to charters explaining this submission: are straight forward:

“Enter the total cost, by asset classification, recorded in the general ledger and on the capital assets list as of June 30, 2017, for items costing $5,000 or more and, for equipment, having useful lives of 1 year or more. These amounts represent the ending balances in the capital assets accounts and should not include depreciation.”

Even if a charter leases its buildings, it certainly owns desks, chairs and computers with a useful life of over one year. Several large charter companies failed to list any capital assets including seven Imagine Schools and all American Leadership Academy schools.

Who cares? Two reasons. 1. The Superintendent’s Report is the only document that compiles total charter spending (we have to access each individual charter’s Annual Financial Report and cut and paste 417 reports to get a picture of charter expenditures). If the Legislature or the public would like to know what kind of investments charters have made in land, buildings, and equipment the Superintendent’s Report is the only place to look. Here are the capital assets of all charters in 2017 reported on page 431:

Total Arizona Charter Assets 2017

Land & Land Improvements$236,224,959

Site Improvements$32,715,125

Buildings & Building Improvements$1,048,041,900

Equipment$185,921,736

Construction in Progress$38,511,064

This data does not include the assets of sixty-one charter holders including Imagine Schools and the American Leadership Academy. What you see above is garbage – a complete misrepresentation of charter wealth in Arizona.

2. ADE reports capital assets to the U.S. Department of Education for the National Public Education Financial Survey by law. “NPEFS data is required to be submitted by all schools and is used to calculate a state per pupil expenditure amount that is used in the formula for allocating a number of federal program funds to states and local education agencies, including Title I, Impact Aid, and Indian Education. Other programs make use of state per pupil expenditure data indirectly because their allocation formulas are based, in whole, or in part, on state Title I allocations. The NPEFS and Form 33 data is also used by researchers and government policymakers to address important education policy and research issues.”

ADE is sending the federal government vastly inaccurate data about charter schools in Arizona.

Is ADE incompetent? Perhaps. More likely is that they just don’t care about reporting accurate charter data. Public districts are monitored and sanctioned by the Auditor General. There is no way a public district could fail to submit data – the Auditor General would investigate (and sanction) them immediately.

But no one reads charter expenditure data. No one. So why should ADE bother?

We talk about fake news and what really is the truth. When the state perpetuates fake data year after year how can the press, or watchdogs like ACSA find the truth?

The Governor's pledge to increase capital funding for school districts to make up for the 85% reduction in capital revenues since 2008 should not be extended to benefit charter schools.

Charter schools receive funding to cover construction, capital expenses, and transportation amounting to an additional $1752/pupil for K-8 enrollment and $2042/pupil for 9-12 enrollment in 2018. This add-on is to compensate for charters being unable to have bond and override elections to fund capital expenses. The charter add-on was not cut by the Legislature, but rather has increased by 21% since 2008:

State revenue has shifted dramatically since 2006 to fund charter schools at the expense of public districts. Charter revenue/pupil provided by the state has risen from $5,964/pupil in 2006 to $7,454/pupil in 2016, a 25% increase. District state revenue has gone down from $4,145/pupil in 2006 to $3,777/pupil in 2016, a 9% decrease. Districts have had to rely on passing bond and overrides since 2008, shifting the funding burden to local property owners.

The Charter Association will claim charters should get an equal share of new capital funding. But drive around the East Valley and look at the myriad of new charter buildings. For example, check out the latest state of the art campus of the American Leadership Academy at Higley and the 202. The owner has six other new schools, all paid for with state funds yet ALA had a surplus of over $4 million in 2017. This is evidence of the adequate, and we believe over-funded, charter capital system that is fueling the acquisition of real estate empires - new buildings bought with taxpayer dollars that are the sole property of the charter owner…not the public.

$1.5 Billion in State Funds is Unaccounted for in 2017:The Arizona Department of Education and the Arizona State Board for Charter Schools are Grossly Negligent in the Oversight of Charter School Expenditures (Full Report)

$1.5 Billion in State Funds is Unaccounted for in 2017:The Arizona Department of Education and the Arizona State Board for Charter Schools are Grossly Negligent in the Oversight of Charter School Expenditures

The system of accountability for charter schools is Arizona is broken. No one in Arizona is holding charter schools accountable for accurate reporting of expenditures or determining if those expenditures are a proper use of state funds. The Arizona Attorney General needs to step in to demand that the Department of Education and the Charter Board provide financial accountability for $1.5 billion of tax funds spent annually on charter schools.

The Annual Financial Report (AFR) is the only document submitted by Arizona charter schools that details how state funds were expended. Charters have been allowed to submit incomplete and highly inaccurate AFRs for years, rendering any accounting of charter spending virtually impossible. The lack of supervision by the Arizona Department of Education and the Arizona State Board for Charter Schools has left $1.5 billion in tax funds completely unaccounted for.

There were serious errors on all of the 13 reports examined. Charters left whole sections of the report blank and numbers often did not match between actual expenditures and summaries required by the Arizona Department of Education (ADE) and the U.S. Department of Education. The large charter companies with centralized staffs and significant resources did no better than the “mom and pop” charters when it comes to submitting accurate data. One large charter, American Leadership Academy (ALA), has not reported spending in dozens of categories since 2009 and has consistently misrepresented spending on the required summaries. Since no one monitors ALA spending, they do not report spending for food service, athletics, or their fee-based student transportation program. ALA was Division 3A state football champions in 2016 yet reported no expenditures for athletics despite collecting $1.4 million in student fees and public donations.

The problem is systemic and ongoing. ADE has published completely inaccurate charter financial data in the Superintendent’s Annual Report to the Legislature and has submitted false data to the U.S. Department of Education for years. The Arizona State Board for Charter Schools refuses to look at the AFRs, relying instead on annual audits that often report charter spending in just three numbers: Program Services Instruction and Operation, Supporting Services Administration, and Total Expenses. The Charter Board audit is only concerned with the cash flow and cash reserves of the charter company to determine if they are a viable business.

Unlike every other state agency that is monitored by the Auditor General, there are absolutely no mechanisms in place to detect fraud in charter financial transactions in Arizona. Charters are given a $1,500,000,000 blank check with the knowledge that no one is watching to see how they spend the money.

Jim Hall, founder of Arizonans for Charter School Accountability noted, “ The Arizona Department of Education (ADE) has allowed charter schools to submit false information about spending for years, to the point that many charters simply leave sections blank in the AFR without repercussions.” Hall continued, “ The Attorney General needs to investigate ADE and the Charter Board to determine which agency is responsible for the accurate reporting of charter school spending and for monitoring fraud. The Auditor General needs to investigate schools like American Leadership Academy that fail to report millions of dollars in spending every year. Until that happens, $1.5 billion in tax funds are flowing through charter schools with no accountability what so ever, as long as the charter school shows a profit.”

The Attorney General confirms: Charter schools owned by Representative Eddie Farnsworth are exempt from all Arizona Open Meeting Laws

A.R.S. 38-431 says all legal actions of a public body must be made in a meeting open to the public:38-431.01. Meetings shall be open to the publicA.All meetings of any public body shall be public meetings and all persons so desiring shall be permitted to attend and listen to the deliberations and proceedings. All legal action of public bodies shall occur during a public meeting.This is true for every school district, charter school, public agency, and commission in Arizona.But Republican Eddie Farnsworth, the only charter school owner in the Arizona State legislature, has found a way around the law.Rep. Farnsworth’s Benjamin Franklin Charter Schools operate in secret, apparently with the blessings of the Attorney General’s Office.The four Benjamin Franklin Charter Schools in the East Valley are owned solely by Republican Representative Eddie Farnsworth as a for-profit company. Mr. Farnsworth has appointed himself the only board member of the school’s governing board and, as the result of a technicality in Arizona law, does not have to follow Arizona’s Open Meeting Laws.Mr. Farnsworth has free rein to conduct all matters pertaining to the expenditure of over $18 million in public money every year in complete secrecy – there are no public meetings at Benjamin Franklin and there can be no Open Meeting Law requests for information.

ACSA filed a complaint in March 2017 against the four Benjamin Franklin Charter Schools for failing to provide information about the location and notice of board meetings on their website as required by law.As of October 25, 2017 the school websites are still out of compliance with Open Meeting Laws.Danee Garone, a lawyer with the Attorney General’s Ombudsman’s Office, failed to respond to a July 16, 2017 request for an update on the complaint but sent this email on October 24, 2017:

I have looked into your Benjamin Franklin Charter Schools complaint. Initially, I did not receive a response from the schools.I followed up and was directed by one of the schools to Eddie Farnsworth. I spoke to Mr. Farnsworth. He asserts that he is the only member of the governing board. If I understood him correctly, essentially, it is run by a single person similar to how State agencies operate. As such, he asserts, he/the board do not need to comply with the open meeting law. Pursuant to A.R.S. § 38-431.01, the open meeting law applies to public bodies. “Public body” is defined by A.R.S. § 38-431:"Public body" means the legislature, all boards and commissions of this state or political subdivisions, all multimember governing bodies of departments, agencies, institutions and instrumentalities of this state or political subdivisions, including without limitation all corporations and other instrumentalities whose boards of directors are appointed or elected by this state or political subdivision…..Based on the definition of “public body” and the workings of the open meeting law, one must conclude that it applies only to multi-member governing entities. According to Mr. Farnsworth, the governing entity for the Benjamin Franklin Charter Schools consists of only one member. As a result, I think it is likely that the Schools’ board is not violating the open meeting law because it is not subject to it.

Mr. Farnsworth appointed himself as the only school board member so the board is not “multimember” and therefore is not subject to Arizona Open Meeting Laws.

Jim Hall, founder of Arizonans for Charter School Accountability, noted: “As a member of the Arizona Legislature, you would hope Rep. Farnsworth would set an example for assuring charter schools are spending tax dollars in a transparent manner. Instead, Rep. Farnsworth participates in the worst of practices of deception and secrecy that undermine the credibility of “public” charter schools.There is nothing “public” about Rep. Farnsworth’s charter schools.”

The release of the preliminary 2016-17 K-8 A-F scores for Arizona schools on October 9th held some shocking news for the school choice movement. Despite the significant lack of minority, poor, and special needs students in charter schools compared to district schools, charter schools failed to out-perform public district schools. Overall, charters had a significantly smaller percentage of schools receiving either an “A” or “B” rating – nearly half of all district schools received an “A” or “B” while only 40% of charter did so. There were ten charter schools that received an “F” grade. George Washington Academy, an Edkey school founded by Senate Education Chair Sylvia Allen, was one of the failing charter schools.

Basis, Great Hearts, and other college prep charter schools are reeling from the news that they have many ”B” and even C schools in the 2016-17 A-F rankings. Basis has four schools that received a B rating and Great Hearts has seven schools with “B” ratings and four with a C rating. Ten Basis and Eight Great Hearts schools are still under review.

District schools where many of the Basis and Great Heart students reside had a large number of A schools. Scottsdale Unified had over 65% of its schools receive an A rating (15 of 23 schools) and Gilbert Unified had 14 of 34 schools receive an A.

With 147 charter and district schools under review, it is too early to make definitive statements about the 2016-17 A-F ratings. Jim Hall, founder of Arizonans for Charter School Accountability, noted: “Two things are certain: It is going to be much harder for parents to fork out the $1500 “suggested donation” to a Basis or Great Hearts school that has a B or C rating. And school choice advocates will no longer be able to hide behind the mantra that charter schools do not need to be transparent because they perform at such a high level. It doesn’t look like charters are doing so well after all.”

A full report will be released at azcsa.org when final grades are determined.

Unrepaired Buildings – Underpaid Teachers:The Arizona Legislature has slashed district budgets to pay for unbridled charter growth. New charter students since 2008 have cost the state $223,977,291(Full report)

The Arizona Legislature has cut capital revenue to school districts 85% since 2008. Overall, districts received 20% less per pupil (-$927/pupil) in state revenue in 2016 than in 2008. Charter per-pupil revenue from the state, on the other hand, has increased 11% (+$714/pupil). Charters receive $3678/pupil more from the state budget than for the average district student because most district revenue comes from property taxes. Uncontrolled charter expansion since 2008 has allowed 8000 new charter students a year, costing the general fund an additional $25 million annually, a total of $224 million more since 2008 than if the students had remained in a public district.

When the recession hit in late 2007, the Legislature began cutting capital revenue to districts while also failing to supply funds for inflation. Charter school per/pupil revenue, however, continued to increase. More importantly, the Legislature placed no caps on new charter students – students that cost the state twice as much as district students. The impact of legislation since 2008 on the state budget has been a shift of $223 million away from districts to pay for runaway charter growth of 75,000 students over the last nine years. The Legislature could have done what twenty other states do – limit charter growth to fit the state budget.

Instead, public districts are now unable to buy textbooks, computers , repair dangerous classroom buildings, or pay teachers a living wage because district funding has taken a back seat to charter school expansion.

Jim Hall, founder of Arizonans for Charter School accountability noted: “Public districts are increasingly serving more and more at-risk children, English language learners, and special education students that are often excluded from charter schools. The Arizona Legislature is underfunding districts with such diverse needs to pay for unbridled charter school expansion.” Hall continued: “The Republican Legislature’s fanatic support for charter schools, and now vouchers to give state funds to private schools, is slowing drowning public education in Arizona. “

Arizona Charter Schools Are Draining the State BudgetCharter schools have 15% of state enrollment but take 26% of the K-12 education budget (Full Report)

Arizona ranks 4th in the nation for the number of charter schools in operation, but ranks first in the percentage of students attending charter schools – 15.1% of all K-12 students in Arizona. Arizona also leads the nation in permissive charter regulation while providing lucrative financing that entices large national charter corporations like Imagine, Leona, Great Hearts, BASIS, and K-12 to set up shop in Arizona. Charter schools in Arizona do not have to worry about local funding or reliance on property taxes. The state picks up the tab for all charter operations and guarantees additional inflation adjusted funds of $1752/pupil for K-8 and $2042/pupil 9-12 to pay for new buildings and equipment. [2] It is a sweet deal as evidenced by the plethora of lavish new charter facilities springing up all over Arizona. Public districts have not been as fortunate. Beginning in 2009, the Arizona Legislature drastically cut funding for capital expenses for computers, buses, and building repairs. Public districts received about $450/pupil for capital expenses in 2008. Today, districts receive about $60/pupil – a reduction of 85%. A lawsuit has been recently filed by the Arizona Center for Law in the Public Interest to address the issue.

The capital reduction, combined with the failure of the Legislature to fund inflation increases over the years, has forced districts to resort to override measures that shift the burden of funding schools to local property owners. Since 2003, public districts have seen the percentage of their budget provided by the state drop from 44% to 39% with the local community forced to make up the difference.

Charter schools have been spared from such reductions. State spending for charter schools increased by 36% from $5482/pupil in 2003 to $7454/pupil in 2016. State funds provided to districts rose just $7.00/pupil 2003-2016, an increase of .19%.

The differences between district and charter financingAs you can see from the chart above, charter schools receive most of their funding from the state budget while districts receive about half as much. Public districts operate on an equalization formula based on the property values in the district. A wealthy district is expected to pay for most K-12 educational costs because they are able to generate a great deal of revenue with a modest property tax rate. A poor district would have to set an exorbitant tax rate to pay for education, so the state provides money to equalize the funds they receive.

But equalization doesn’t make the funding of public districts equal. Scottsdale Unified is a very wealthy district with an assessed valuation of over $4.5 billion. Scottsdale receives a fraction of its budget from the state with property taxes providing the bulk of funding. Scottsdale residents have voted for both budget overrides and a $200 million bond issue yet residents pay just $3.90 in property taxes.

If you live in Buckeye you don’t have it so good. Buckeye has over $4.3 billion less in property value than Scottsdale, so Buckeye Elementary receives most of its funding from the state. Even so, Buckeye residents still pay 40% more in property taxes than in Scottsdale.

When it comes to voters passing overrides and bond issues that increase property taxes, which district would be more likely to be able to pass these measures? Rich folks in Scottsdale can have the best of everything and pay lower property taxes than parents in Buckeye.

Charters, on the other hand are funded equally regardless of the local neighborhood. Charters receive that same per pupil funding as districts and receive the same additional funds for students with special needs. Since charter schools cannot have bonds paid for by local taxpayers to make capital purchases and build schools, they receive additional funds - $1752/pupil for K-8 students and $2042/pupil for 9-12 students. This additional assistance automatically increases for inflation every year. The charter additional assistance has increased 19% since 2008 while district capital allocations were reduced by 85% over the same time period. No property taxes are used to fund charter schools; their revenue comes strictly from the state general fund.

Public districts, on the other hand, are funded by the state based on the wealth of the community. Public districts must beg their property owners, the majority of which do not have children in school, to increase their taxes so schools can be adequately funded, make repairs, and build facilities. Poor districts already plagued by high property taxes are less likely to receive needed funds.

Charters get funds automatically, and they all come out of the state general fund. In 2016 the state contributed an average of $7,454/pupil to charter schools and average of $3,777/pupil to districts - $3677/pupil less than charters receive.

College prep charters like BASIS that are mostly in affluent neighborhoods get a bigger share of state money because the majority of funds the local districts the children are leaving come from property taxes. For example, a student that leaves Scottsdale Unified to go to BASIS Scottsdale costs the state more because Scottsdale Unified only receives $1456/pupil in state funds, rather than the $3,777/pupil average public districts receive. The wealthier the public district charter students come from, the more state money is required.

The high cost of school choice:Charter schools are taking an ever -increasing proportion of the state education budget. Charter schools made up 7% of enrollment in 2003 and accounted for 10% of the state education budget. Charter schools now serve 15% of students in Arizona but take over 26% of the state budget.

The increase in charter school students since 2002 has put a huge burden on the state education budget – a budget that provides the second lowest per pupil spending in the country. If Arizona had capped the number of charter students at the 2003 level of 66,000 students, the state would have $360,000,000 more to spend on public education in Arizona.

Conclusions:School choice is an expensive proposition. Every student that leaves a public district leaves behind a building that was paid for by bonds financed by local property owners. The State of Arizona pays charters an additional $1700-$2000 so that the student can go to a new building built by a charter owner – a building the charter holder owns, even if the charter goes bankrupt. The district property owners provided a substantial amount of the funding for the students’ education. When students move to a charter school the state must pay for their all of their education – spending an average of $3677 more from the state education fund than if the student was in a public district, leaving less money available for all public education. The taxpayers of Arizona are subsidizing charter students at a rate of $3,677/pupil in additional state funding, causing the state education fund to lose $360 million to charter schools since 2003. Arizona can’t afford to lose even $3,677 for one student out of the general fund when public schools are in need of basic repairs and teachers are leaving the profession in droves because of low pay.

The Governor and the Legislature need to be held responsible for undermining public education for the benefit of their ideology that is bent on privatizing education. Legislation needs to be passed to make charter schools accountable for how they spend public funds. If the Auditor General reported on the excessive speeding on administration and facilities that 40% of charter owners are guilty of, the public would realize that charter schools are over-funded, at the expense of neighborhood schools and the children of Arizona.

If the Governor and Legislature would like to keep this expensive program, perhaps they should look for a new revenue stream to pay for it, rather than steal it from public districts.

Arizonans for Charter School Accountability has recently filed complaints with the Arizona Attorney General against 113 charter holders for failing to post school board information on their websites as mandated by Arizona’s Open Meeting Law.

288 charter holders out of 411 total complied with the law. Many have completely transparent board meetings and offer their parents access to information and the governing process. They are to be commended.

But 113 charters did not state where public notices are posted or supply school board meeting notices on their websites as required by Arizona’s Open Meeting Law. Some of the largest Arizona charter companies including Great Hearts, EdKey, Benjamin Franklin, Noah Webster, and Sonoran Science Charter schools failed to comply with the law. Further study revealed that 147 charters did not post notices for any board meetings in 2017 and 91 charters have no notices of any board meetings – ever.

Charter boards are not elected in Arizona - they are appointed by the charter owner. Charter school boards are only required by statue to “set the policies of the school” and can turn over all of the day-to-day operation of the school, including hiring all staff, to the charter corporate board, even if the charter is non-profit. All curriculum, personnel, and management decisions can be made in secret by the corporate board that is a private organization and is not bound by open meeting laws or public records requests. The charter school board only sets policy.

As a result, a number of charter holders seldom have school board meetings, and when they do little is discussed. For example, Basis Inc. has one school board meeting for all 20 Basis schools in the state. The BASIS April 2017 board meeting (the first meeting since August 2016) had one item on the agenda – a website accessibility policy and nothing else.

Prior to 2000, Arizona statues required charter school boards to make “operational and policy decisions” for the school. The 2000 Arizona Legislature struck the word “operational” from the law, taking all requirements for operational transparency away from public charter school boards and allowing all management decisions to be made in secret at the corporate level.

Jim Hall, founder of Arizonans for Charter School Accountability, noted, “The lack of transparency in Arizona charter schools has been carefully crafted by conservative state legislators since the initial charter legislation in 1994. Charter oversight is so lax in Arizona that 113 charter schools fail to supply school board meeting information on their websites as required by the Open Meeting Law. “

Hall continued, “Arizona charter school board meetings are so meaningless, by statute, that many charter owners don’t bother to have meetings. And many that do only discuss things like their website access policy. Charters are allowed to hide all aspects of their operations from the public in secret corporate meetings. How can they be considered public schools?”

What “serving every single student” means to BASIS ed. CEO Peter Bezanson

BASIS ed. CEO Dr. Peter Bezanson was asked by ABC 15 News on May 3, 2017 about Arizonans for Charter School Accountability’s contention that the BASIS model depends on weeding out students from 6th to 12th grade through the most advanced curriculum and extremely high grade promotion requirements in the country. (See the report at azcsa.org in Past Research).

Dr. Bezanson had this to say: “We serve every single student who applies to our schools, and are lucky enough to win the lottery to get in.” “ We are a very specific type of thing, for anyone who is willing to give it a shot, but not for every kid."

BASIS serves every student that is lucky enough to get in and lets them have a “shot” at succeeding. Those that have a “shot” are students that are able to pass 11 AP tests by the 12th grade. Only .4% of all students in the U.S. took 11 AP tests in 2014-15, let alone passed them. You have to be in the top .4% of students in the country to have a shot at graduating from BASIS Scottsdale.

So when Dr. Bezanson says that BASIS is “not for every kid” he isn’t referring to special needs children, English language learners, students without transportation to north Scottsdale, or students that are not willing to work. “Not every kid” means any student that cannot pass high school algebra in 7th grade, or pass eight comprehensive exams, including the high school World History AP test in 8th grade, or pass at least 6 AP tests in high school.

The U.S. News and World Reports (U.S. News) used the following guideline to select BASIS Scottsdale as the best high school in the U.S.:“…a great high school must serve all of its students well, not just those who are college bound, and that it must be able to produce measurable academic outcomes to show it is successfully educating its student body across a range of performance indicators.”

I wonder if any of the parents of the 44 graduating seniors at BASIS Scottsdale believed their child was not college bound when they enrolled them in 6th grade. There were 125 sixth grade students in 2008-9 at BASIS Scottsdale. The 81 students that didn’t graduate in 2015 had their “shot”. Instead of “successfully educating its students across a broad range of indicators”, BASIS failed to educate 65% of the class of 2015.This is what Dr. Bezanson believes is serving all students well. Give them a “shot” and let them fail if they are not the best and the brightest students in the country.

BASIS Scottsdale is not a model public school…it is a high stakes game. Anyone can play and, if you are lucky, you win the lottery to the join the game. But the game is rigged - only the best and brightest students in the U.S. have a chance of winning.

BASIS Scottsdale operates the most difficult and advanced school for the extremely gifted in the U.S. , perhaps in the world. Let’s just call it that. It is far removed from anything resembling a public school. U.S. News should be ashamed to rank a school with so little regard for educating all its students well.Again, you be the judge. Is BASIS Scottsdale the best public high school in the U.S.?________________________________________________________________________________________________

Arizona charter school capital funding increased 15% while districts declined by 85% between 2009 and 2017. It is not accidental.

State legislator Eddie Farnsworth (R) owns the Benjamin Franklin chain of charter schools and his company, LBE Investments has built four beautiful campuses in the East Valley, and then leases them back to his schools. (see the report at azcsa.org). Fancy brand new charter school buildings are sprouting up all across the valley.Last year Glendale Elementary District had to close two elementary schools when the district found structural deficiencies that could pose safety risks for students and teachers. Glendale’s budget does not have sufficient funds for routine building maintenance, let alone money to make major repairs. There is no money for computers, textbooks, or buses either.Arizona’s reduction in funding for capital expenses since 2009 has created a world of haves and have nots and public districts have ended up on the losing end - for the benefit of “school choice”.The Arizona Center for Law in the Public Interest filed a suit on behalf education groups, three districts and parents on May 1, 2017 over cuts of up to 2 billion dollars in capital funding for public districts since 2009. All public school districts, not just Glendale Elementary, are unable to afford major capital purchases like computers or buses - they do not have the funds to replace broken air conditioners or maintain school buses. You do not hear these complaints from Arizona’s charter schools.The reason is simple: Beginning in 2009, the Arizona Legislature has cut district capital funding by 85% and has increased charter school additional assistance funds ,meant to cover the costs of capital purchases and facilities, by 15%. Representative Farnsworth and other charter owners are reaping the bonanza created by the Republican’s myopic fascination with school choice that is systematically destroying public education in Arizona.Public districts received about $450/pupil in elementary and $490/pupil 9-12 for capital expenses in 2008. Today, districts receive about $60/pupil – a reduction of 85%. The additional assistance charter schools receive for capital purchases, on the other hand, has increase from $1474/pupil to $1700/pupil in K-8 and from $1718/pupil to $2000/pupil 9-12 between 2008 and today, a 15% increase.School districts must pass bond issues when they are unable to make major purchases and repairs, shifting the burden to local property owners. The measures are not always successful, so districts ask for in absolute minimum to get by. Fourteen districts in Maricopa County passed bond issues to make repairs last year.Charter schools get the funds automatically and they get substantially more than districts receive. Charter additional assistance is supposed to pay for three things – transportation, capital expenditures, and facilities costs.School districts are funded for transportation based on the route miles all buses make on their regular routes, excluding field trips. Charter schools get a set amount, $170/pupil when charter assistance was funded in 1999. Charters receive that funding for every student in the charter school, even if the school does not provide buses and transportation. On-line charter schools that have no campus still receive transportation funds. 184 charter schools spent nothing on transportation and 287 spent less than $100/pupil in 2015.School districts in 2014-15 spent an average of $267/pupil on capital purchases, using state capitol funds, bond money and money taken from the M&O budget. District property owners provided an average of $1034/pupil to pay for bonds used to build facilities. That is $1100 - $700-$900 less than charter schools receive.Factoring in transportation, charter owners receive enough in additional funding to not just maintain adequate facilities; they are able to purchase prime real estate and build elaborate schools – all owned by the charter holder. Over half of all charter schools spent more on administrative and facilities costs than in the classroom in 2016. The excessive charter additional assistance makes that possible.It is often said that Governor Ducey and the Republican legislature are subtly trying to destroy public education with vouchers and low teacher pay. Eliminating the funding for public school capital expenses – not just the classroom necessities for a 21st century education like computers and textbooks, but basic safety items like replacing old buses and faulty air conditioners, while providing funding for brand new charter facilities, is not subtle.The lawsuit asking the state to pay for computers and textbooks for students and basic safety repairs that have not been made the last 8 years is the first step. Examining charter funding and the way corporate charter schools are able to spend vast sums on management profits and real estate is the next step – one the Governor and legislature will not make in the quest for school choice in their war on public education.

BASIS Scottsdale – The Best High School in the U.S.?Success depends on failure at BASIS Scottsdale (Full report)

BASIS Scottsdale was named the best high school in the nation for 2017 by U.S. News and World Reports. Their statistics are very impressive - 31% minority enrollment, 92.5 % of all students were proficient on the 2014-15 AZ Merit test, and an amazing 92.3% of disadvantaged students were proficient as well. Students average passing 11 Advanced Placement Tests and BASIS Scottsdale has a 100% graduation rate.

U.S. News determined that BASIS Scottsdale was the best school in the country based on the following criteria:

“…the U.S. News comprehensive rankings methodology, which is based on these key principles: that a great high school must serve all of its students well, not just those who are college bound, and that it must be able to produce measurable academic outcomes to show it is successfully educating its student body across a range of performance indicators.”

BASIS Scottsdale does not meet the U.S. News expectations for disadvantaged students or graduation rates. The 92.3% success rate for disadvantaged students is based on less than eight “disadvantaged” black and Hispanic students attending BASIS Scottsdale, located in the fourth richest zip code in Arizona. There are no free/reduced lunch students in any BASIS school.

BASIS Scottsdale had 84% of 9th grade students in 2011-12 make it to 12th grade in 2014-15, not 100% as indicated by U.S. News. Overall, only 65% of the freshmen at the six BASIS high schools in 2011-12 became seniors in 2014-15. The attrition of students between 6th grade and 12th grade is far worse. BASIS Scottsdale had 125 students in 6th grade in 2008-09, but only 44 students (35%) of those students made it to 12th grade in 2014-15.

There are two policies at all BASIS schools that force students to drop out - the advanced curriculum and the performance benchmarks required for promotion.

BASIS claims to have one of the most accelerated programs in the world. Fifth grade students are encouraged to take high school Algebra 1. Seventh grade students are required to take biology, chemistry, and physics and must pass a comprehensive exam on high school Algebra 1 for promotion to eighth grade. In eighth grade, students are required to pass eight comprehensive exams, including passing the high school AP World History test: The requirements increase in high school where students are required to take 8 AP courses and pass at least six Advanced Placement tests to graduate. BASIS graduates average passing 11 AP tests.

According to the College Board, between 2011 and 2015 only .4% of all high school students in the U.S. even take 11 AP tests. BASIS high school students are much better than the top .4% of all U.S. students.

Jim Hall, founder of Arizonans for Charter School Accountability noted, “Public districts could be very successful if they had the strict requirements and exclusive demographics of BASIS Scottsdale. If a public district could weed out 65% of students between 6th and 12th grade - getting rid of all those troublesome average and below average students, special needs children, second language learners, and the unmotivated, it would go a long way toward achieving academic excellence. That is the BASIS model.”

Hall continued, “The truth is BASIS Scottsdale is only successful because they have no disadvantaged students and they eliminate all but the most gifted students in the country by the 12th grade. You be the judge if they represent the best public high school in the U.S.” (The full report with supporting data and sources is available at azcsa.org)

Research Summary: Arizonans for Charter School Accountability analysis of charter school spending in 2016 - what the Auditor General would report if they could monitor charter school spending (Full report)

Two bills were submitted this session, SB1233 and HB2443, to require the Auditor General to monitor charter school spending. Republican Education Committee Chairpersons in both chambers never allowed the bills a hearing.

This is what the Auditor General’s Office would have found if Republican lawmakers (and the Governor) cared about how precious education funds were spent in 2016:

Arizona Charter School Classroom Spending Report 2016

Part 1 - Less than half of all Arizona charters (191 out of 411) spend more in the classroom than on administration and facilities combined. These ‘efficient” charters were both large and small and represented the broad range of charter models – college prep, alternative, arts focus, etc. Many had substantial mortgages and have new, modern facilities. It is possible for charter schools to focus their budget on classroom instruction. Some of these charters, however, spend less overall because they are for-profit and the savings go to company profits.

Part 2 – The majority of Arizona Charter schools (220 out of 411) spend more money on management and facilities combined than on classroom instruction. Fifty charter schools spent more on just administration than in the classroom. Sixty-two charters spent more on their facilities than on classroom instruction. Shockingly, 29 charter schools spend more for both management and facilities individually than in the classroom. The Leona Group LLC ran nine of these schools and three were run by Imagine Inc., both large national charter management companies.

Part 3 – The Leona Group LLC operates in five states. Leona managed schools spend the least on classroom instruction of any schools in Arizona. We found that the owner of the for-profit Leona Group LLC, Bill Coats, sold 10 schools he owned in 2007 to his non-profit foundation, The American Charter Schools Foundation (ACSF), for double their market value. Coats also created management contracts that have a set fee that increases annually, regardless of the school’s revenue. Today, the 10 ACSF schools have excessive management costs and extremely large mortgages, but have declined in enrollment by 25% since 2007. The result is schools that spend less than 20% of their budget on all classroom instruction, but provided Bill Coats with a $25 million payday in 2007 while Arizona taxpayers are stuck paying the mortgages

Part 4 – Imagine Inc. operates in 11 states and D.C. For-profit Imagine Inc. manages 19 schools in Arizona for their non-profit Imagine Schools Non-Profit Inc. The Arizona Imagine schools spend $12 million more on management and facilities then in the classroom in 2016 as the result of “self-dealing”, a practice that caused a Federal judge in Missouri to fine Imagine Inc. $1 million in 2015. Imagine uses a myriad of accounting schemes to bolster profits including charging schools “loss mitigation” fees of 2% of gross revenues to cover financial losses caused by their mismanagement. 12 of the 19 Arizona Imagine schools are in financial difficulty, yet have some of the highest administration and facilities costs in the state.

Online Charter Schools Make Millions in Profits

When looking at total per pupil expenditures, we found that there were schools that spent far less per pupil total than most charter schools. These schools are operating their schools for millions less than they receive in state funds, and taking the rest as profit. The first two we looked at were Primavera Online and Pinnacle Schools MGRM:

American Virtual Academy Inc. – Primavera Online High School was the most successful non-profit charter in Arizona with assets of over $44 million. In 2015, non-profit Primavera Technical Learning Center suddenly decided to go out of the charter business and gave the school to its software vendor, the for-profit American Virtual Academy (AVA), free of charge. In 2016 , AVA hired FlipSwitch Inc. to provide the licenses for the courseware used by the school for $13 million. AVA made a clear profit of $10 million in 2016.

Damian Creamer owns all of these companies as well as the non-profit Primavera Online. Between 2009 and 2015 Creamer took over $1 million in salary as the director of the non-profit and paid his company AVA $84 million in licensing fees. As sole owner of for-profit AVA, Creamer reaped a $10 million profit plus $13 million in licensing fees from his company FlipSwitch Inc. in 2016. Creamer’s new company, SoundMinds, is now selling the software created for Primavera to online schools around the nation.

Pinnacle Education MGRM– is owned by a multi-national software company based in India, MGRM. In 2016 the 4 Pinnacle charter schools (enrollment 620), using online software created by MGRM, spent $3.4 million to run the schools and sent $3.4 million back to corporate headquarters in India as profit.

Charters Spending More on Real Estate than in the Classroom

Benjamin Franklin Charter School– is owned as a for-profit charter school by Arizona State Representative Eddie Farnsworth (R). His charter has $3 million in stockholder assets and he is the only stockholder. Benjamin Franklin Charter School is one of only 62 charter schools in Arizona that spends more on real estate than in the classroom. Benjamin Franklin Charter School(BFCS) spent $155,106 more on just their facilities than on all classroom instruction in 2016. BFCS leases its schools from LBE Investments – a for-profit real estate investment company owned by Farnsworth. Between 2013 and 2016 enrollment increased by 24% but lease payments went up 298% while classroom expenditures rose just 39% in comparison.

American Leadership Academy– The non-profit American Leadership Academy (ALA) was founded by former Utah state legislator Glenn Way in 2009. Since that time, ALA has expanded exponentially with 12 schools and over 5000 students this year and several new schools scheduled for opening in 2017-18. Glenn Way owns a company in Salt Lake City, Schoolhouse Development LLC, with two partners, Scott and Corey Brand. Schoolhouse Development LLC provides all aspects of charter school facilities development including data analysis, financing, architectural design, and construction

Instead of hiring Schoolhouse Development to assist in building their facilities, ALA turns over the entire ownership of the facilities to Schoolhouse Development and then leases the facilities back from Schoolhouse. As a result, Glenn Way and his partners become the owners of all of the property and buildings while collecting untold fees for building the schools. ALA signs its life away with each lease, pledging that all revenue coming to the school will go first to pay the mortgages on the property – Glenn Way’s mortgages.

More alarming, ALA has submitted deceptive and inaccurate information hiding the fact that Way profits tremendously on ALA real estate transactions. ALA has not reported their relationship with Glenn Way’s real estate development firm, Schoolhouse Development LLC, on the required annual audit submitted to the Charter Board and has filed incomplete and inaccurate I.R.S. 990 returns in 2014 and 2015.

There are dozens more charter schools in Arizona like these.

Charter schools in Arizona do not have the same level of transparency as public districts. Without transparency, there is no way of knowing how public funds are being expended. If we won’t monitor the spending of “public” charter schools, how will we ever account for voucher funds given to individuals or private organizations? Research Summary - full report All reports can be found in the Past Research tab.

________________________________________________________________________________________________Director Glenn Way Diverts American Leadership Academy Properties To His Private Ownership – and Hides the Fact from the State and the I.R.S. (Full Report)

Jim HallArizonans for Charter School Accountability

The non-profit American Leadership Academy (ALA) was founded by former Utah state legislator Glenn Way in 2009. Since that time, ALA has expanded exponentially with 12 schools and over 5000 students this year and several new schools scheduled for opening in 2017-18. ALA only owns two of the campuses, Mesa ALA and San Tan Valley ALA, because they were financed with bonds that can only be obtained by non-profit charter schools. The rest of the schools are either directly owned by Way and his associates or leased by Way and then rented back to ALA.

More alarming, ALA has submitted deceptive and inaccurate information hiding the fact that Way profits tremendously on ALA real estate transactions. ALA has not reported their relationship with Glenn Way’s real estate development firm, Schoolhouse Development LLC, on reports required by the State - the annual financial report and their annual audit and has filed incomplete and inaccurate I.R.S. 990 returns in 2014 and 2015.

Glenn Way owns a company in Salt Lake City, Schoolhouse Development LLC, with two partners, Scott and Corey Brand. Schoolhouse Development LLC provides all aspects of charter school facilities development including data analysis, financing, architectural design, and construction. They have completed over 20 charter construction projects, including five ALA schools.

Instead of hiring Schoolhouse Development to assist in building their facilities, ALA turns over the entire ownership of the facilities to Schoolhouse Development and then leases the facilities back from Schoolhouse. As a result, Glenn Way and his partners become the owners of all of the property and buildings while collecting untold fees for building the schools. ALA signs its life away with each lease, pledging that all revenue coming to the school will go first to pay the mortgage on the property – Glenn Way’s mortgage.

ALA recently was in the news because the City of Gilbert allowed ALA to build a school on 42 acres near Loop 202 and Higley Road after discouraging Higley Unified School District from building a school there last year.

How Glenn Way will profit from the new ALA school on Higley and Loop 202

Step 1. Glenn Way and his partners formed a new for-profit real estate company, Schoolhouse Higley LLC. (SHH).Step 2. The new company, Schoolhouse Higley, then secured a construction loan for $36 million from a mortgage trust in Canada, Romspen Mortgage Limited Partnership:

Step 3. Schoolhouse Higley qualified for the $36 million loan by signing a subordination agreement with ALA. ALA agreed to lease the property from Schoolhouse Higley and pledged that all rent will go toward the mortgage. This gives the lender a guarantee that all of the state revenue collected by ALA will go to paying the mortgage before any other expenses are paid.

The Result? Glenn Way and his partners in Salt Lake have access to $36 million to build a school for ALA and can pay themselves an unknown amount for development fees, planning, and construction. Since ALA has a waiver from the Arizona Charter Board from following Arizona procurement laws, there are no open bids and no records of how much was spent for the purchase price of the 42 acres, the construction contract, or fees to Glenn Way and his associates. When the school is completed, Way and the Brand brothers will own 42 acres and a $30+ million facility. The non-profit ALA will own …zip, but will have a huge lease payments to support Glenn Way’s mortgage. Lease payments paid for by Arizona taxpayers.

This type of self-dealing between a for-profit company and a non-profit charter school that have common ownership allows complete secrecy because the operations of the for-profit company are not privy to public scrutiny. Never the less, non-profit 501(3)(C) charter schools must at least report these “related party” transactions. ALA completely fails to do so:

ALA’s failure to report related party transactions:

1. ALA annual auditsALA reported renting buildings and property on all audits between 2012 -2016. Rent increased from $1,162,928 in 2012 to $7,880,357 in 2016. ALA never acknowledges that it is paying rent to ALA Director Glenn Way’s company.2. Incomplete and inaccurate I.R.S. 990 returnsMost disturbing is the failure of ALA to disclose required information on their annual IRS 990 return. ALA answered “No” to this question on their 2014-15 return, even though they pay mortgages owned by their Director.Was the organization a party to a business transaction with one of the following parties? (see Schedule L, Part IV instructions for applicable filing thresholds, conditions, and exceptions)

An entity of which a current or former officer,director,trustee,or key employee(or a family member thereof)was an officer, director, trustee, or direct or indirect owner? If "Yes,"complete Schedule L, Part IV . .

ALA paid their Director’s for-profit company over $4 million in lease payments in 2015 and did not provide that information to the I.R.S. as required.A formal complaint is being filed with the IRS regarding this deliberate omission and the false reporting of related party transactions.

Four ALA campuses are the private assets of Glenn Way and his associates. Mr. Way profits immensely by providing the financing, planning, and construction of ALA schools and then retains the property and buildings as personal assets, not assets of the non-profit charter he directs.

ALA takes every opportunity to hide their business relationship with their Director and have been successful at doing so because of the complete lack of supervision and oversight at both the State and Federal level. Apparently no one at the Arizona Department of Education, the Arizona State Board for Charter Schools, or even the Internal Revenue Service checks to make sure reports are completed properly, let alone monitors them for compliance.

BASIS CEO Peter Benanzon misinterpreted two studies conducted by Arizonans for Charter School Accountability in his op-ed piece What BASIS offers: A passport to 20,000 futures published on April 6, 2017.

First, Mr. Benanzon claimed that there is confusion about what constitutes administrative spending. The Auditor General gives charters and districts the same specific guidelines regarding categories where spending is to be recorded on the annual financial report. No school in Arizona, including BASIS, counts building maintenance and operations as an administrative expense, as Mr. Benanzon suggests.

The 2015 study on administrative spending, co-authored with the Grand Canyon Institute, clearly demonstrates that BASIS Schools had some of the highest administrative expenses in the state. The study compared the total administrative spending reported by all districts and charters and found that seven of the thirteen BASIS Schools spent in excess of $1.5 million each for general, school, and central administration. In Arizona salaries, that’s the equivalent of 10 principals, 5 business managers, 10 administrative assistants, and a truckload of copy paper. For each school.

The two studies makes two things very clear. First, BASIS had extremely high administrative expenditures in 2015. More importantly, BASIS Schools ran just fine in 2016 with over $5 million less in management costs – additional funds that in 2015 went to profit, executive salaries, and expansion to for-profit BASIS ed.

Arizona Representative Eddie Farnsworth (R) Has Made Millions Owning Charter Schools that Spend More on Their Buildings than in the Classroom

Farnsworth’s Benjamin Franklin Charter Schools are being investigated for Open Meeting Law violations (Full Report. Links to data are in "Past Research")

Phoenix: Eddie Farnsworth has represented District 12 in the Arizona House of Representatives from 2000 -2008 and was re-elected 2012 - present. Representative Farnsworth founded one of the first charter schools in Arizona in 1996 – the for-profit Benjamin Franklin Charter School LTD (BFCS). There are now four BFCS schools in the East Valley with a K-12 enrollment of 2950 students.

It is unclear how much Representative Farnsworth makes each year owning BFCS, but he controls millions of dollars in stockholders assets and real estate. Benjamin Franklin Charter Schools is also being investigated by the Attorney General’s Office for open meeting law violations.

It is difficult to ascertain how much Representative Farnsworth profits from his sole ownership of BFCS because for-profit corporations do not have to reveal salary information. We do know that Representative Farnsworth is a multi-millionaire – BFCS has over $3 million in stockholder equity and Farnsworth is the only stockholder. BFCD also has assets of $6.7 million in cash and another $35 million in real estate holdings.

Benjamin Franklin Charter School is one of only 63 charter schools in Arizona that spends more on real estate than in the classroom. One hundred and ninety charter holders out of 411 charters in Arizona spent more on classroom instruction than on administration and facilities combined in 2016. Benjamin Franklin Charter School is not one of these, spending $155,106 more on just their facilities than on all classroom instruction in 2016.

In 2014 Representative Farnsworth made a major real estate investment that has created huge lease payments to his subsidiary, LBE Investments. Facilities costs for BFCS have increased much more than the additional revenue generated by growing enrollment. Between 2013 and 2016 enrollment increased by 24% but lease payments went up 298% and overall facilities costs increased 88%. Classroom expenditures rose just 39% in comparison. BFCS has been forced to spend a large part of their budget to pay for the mortgages on the new schools.

By law, all charter schools must follow Arizona open meeting laws. There is nothing on the BFCS website, or any of the schools sites, that gives any information about the board, where and when meetings are held, or any future meeting notices. The district and school calendar do not list any board meetings for the year.

Arizonans for Charter School Accountability filed an Open Meeting Law complaint with the Arizona Ombudsman Office on April 3, 2017. We were notified on April 4, 2017 that the Ombudsman is investigating the complaint.

Jim Hall, founder of Arizonans for Charter School Accountability, stated. “We went to great lengths to document the lack of board presence at Benjamin Franklin Charter Schools because public participation is a key element of all public schools. Washington State’s Supreme Court outlawed charter schools because they do not have schools boards elected by the public so they may not receive public funds. Representative Farnsworth’s charter school website fails to acknowledge they even have a school board.”

He continued, “It does not seem appropriate for a school to spend more on its buildings than on classroom instruction - all teacher salaries, benefits and classroom supplies. If Arizona had greater transparency for charter finances we would know exactly how much Representative Farnsworth profits from his charter ownership. All we know for sure is that it is millions of dollars and that taxpayers are paying his mortgages.”

As the BASIS empire has grown, so have the management fees paid to BASIS Educational Group Inc. (BASIS ed.) owned by Michael Block. BASIS ed. describes management fees as “…upper management salaries and related benefits, technology support, accounting, student enrollment and reporting, and new school development services.” (2015 BASIS Consolidated Audit, p. 18)Between 2012 and 2015 BASIS ed. administrative costs were some of the highest in Arizona, taking in over one third as much in management fees as in all school salaries and benefits.

In a 2015 study by the Grand Canyon Institute and Arizonans for Charter School Accountability, BASIS schools spent an average of $2291/pupil on administration in while the average public district spent just $628/pupil. There were seven BASIS schools out of thirteen that had administration costs of over $1.5 million – each with enrollments of about 750 students.

BASIS General Administrative costs alone amounted to nearly $12 million for 8,730 students, while the six largest public school districts combined served a quarter million students for less than $10 million in General Administrative costs.

This lavish spending on upper administrative salaries, rapid Arizona expansion, and building the national BASIS brand came to an end last year when BASIS ed. dramatically reduced management fees to only 19.5% of school salaries, compared to 35.2% the previous year. If BASIS had reduced management fees in 2015 to the lower 2016 level, BASIS Schools would have saved $7 million - $7 million in profits that went to Michael Block.

Why did Brock take such a hit? Exorbitant management fees and rising debt for new facilities left BASIS Schools with a $13.2 million deficit in net assets in 2015. Even with the drastic reduction in management fees in 2016, the total BASIS deficit soared to $22.9 million in 2016.

The BASIS school in Washington DC has over $1 million in net assets and the Texas schools are in the black $2.5 million. The Arizona BASIS schools, however, show a deficit of over $26 million last year.

The Arizona State Board for Charter Schools has sited BASIS for not meeting financial expectations in 2014 and 2015.

Lavish facilities and huge profits have greatly benefited the bottom line of BASIS ed. (and Michael Brock) but have left non-profit BASIS Schools in trouble with the Charter Board.

BASIS parents gave BASIS Schools over $11 million in extra curricular fees and contributions last year. They should be outraged.

The Consequences of Unregulated Charter Schools:Multi-National Corporation Based in India Collects as Much in Profit as They Spend Operating Four Arizona Charter SchoolsPinnacle Education MGRM made $3.5 million profit from $6.9 million in tax revenues in 2016 – with only 620 students (Full Report)

Pinnacle Education MGRM is a wholly owned subsidiary of the multi-national software corporation WGRM based in India and owned by KVR Murthy. Pinnacle Education spent a total of $3,486,391 for expenses and made $3,474,271 in profit by owning and operating four charter schools in Arizona with a total enrollment of 620 students. All of these profits came from the Arizona general fund.

Arizona’s on-line charter schools have few expenses for facilities, teachers, and support staff. There is no transportation, cafeterias, nurses, librarians, music teachers, or art teachers. Online schools operate with a minimum number of teachers that are available to assist students as they navigate the computer instruction, often by email and telephone.

Online charter schools are funded at a much higher level than public districts. Arizona’s on-line schools receive 95% of the revenue per full-time student of a regular charter school plus the additional charter add-on of $1700-$2000/pupil that public districts do not receive. Pinnacle Education MGRM receives substantially more revenue from the State of Arizona than any public district, while providing a fraction of the programs every comprehensive public district must provide. On-line charter schools are ridiculously over-funded – to the point that Pinnacle Education MGRM can operate with half of the funds they receive, and reap the other half as profit.

Jim Hall, founder of Arizonans for Charter School Accountability noted, “If the Arizona Auditor General were to release an annual report documenting the expenditures of charter schools, people would likely sit up and take notice when it is clear that on-line charter schools make tens of millions of dollars in profit every year. But in Arizona, charter schools go largely unregulated to the point that, by law, the Auditor General cannot monitor charter schools spending. The public never finds out that there are schools like Pinnacle Education MGRM that take half of all state revenue as corporate profits.”

The full report and a report on another on-line charter school, American Virtual Academy, which made $10 million in profit in 2016, are available at azcsa.org

The Consequences of Unregulated Charter Schools:For-Profit American Virtual Academy Nets $10 Million Profit in 2016 After Siphoning $84 Million from Non-Profit Primavera Online. (Full report)

In its first year of operation as Primavera Online High School, for-profit charter holder American Virtual Academy (AVA) made an astounding $10 million profit in 2016. American Virtual Academy was given the charter for Primavera Online by non-profit Primavera Technical Learning Center (PTLC) in 2015 without compensation.

PTLC operated Primavera Online from 2002 to 2015 and had annual revenues of over $30 million a year with accumulated total cash assets of over $44 million with no debt. PTLC was the richest non-profit charter holder in Arizona in 2015.

On May 21, 2015 the PTLC Board suddenly decided to relinquish their charter to their software supplier, American Virtual Academy. There was no money exchanged in the transaction. PTLC is now out of the charter school business and is sitting on $44 million in assets.

Both PTLC and AVA were incorporated and directed by the same man, Damian Creamer. Creamer and his family members have received over $2 million in compensation as officers of PTLC. PTLC has employed Creamer’s software company, American Virtual Academy, since 2005 – paying AVA over $84 million from 2009 -2015 just to use software created by Creamer for Primavera Online.

In 2016 Primavera Online had a record year earning over $40 million. Creamer paid his new software company, FlipSwitch Inc., $13 million for software licenses and another $2.5 million for software support. Despite these huge expenditures, AVA cleared $10 million in profit that went to the company’s only stockholder, Damian Creamer.

Jim Hall, founder of Arizonans for Charter School Accountability commented, “This is worst case of a private citizen profiting from the actions of a non-profit organization imaginable. There is a charade going on in the charter school industry, both in Arizona and around the nation, that allows charter owners like Damian Creamer to control non-profit charter schools to enrich their for-profit subsidiaries – and themselves.”The full report is at azcsa.org

The Consequences of Unregulated Charter Schools:Imagine Charter Schools “Self-Dealing” Allows $12 MillionMore to be Spent on Management and Real Estate than on Classroom Instruction

Imagine Inc., based in Virginia, manages 19 charter schools in Arizona and is the largest charter management company in the U.S. with 33,000 students in 11 states and D.C.

Almost half of all Arizona Charter schools are well managed and spend more money on classroom instruction than on administration and facilities combined. But Imagine schools spend most of their budgets on management and real estate through “self-dealing” – the selling of goods and services between Imagine subsidiaries to benefit Imagine Inc., not to benefit the non-profit schools they manage.The major findings of the report are:

Imagine charter schools spent an average of 29% of their M&O budget in 2016 on classroom instruction and 51% of their budget on administration and facilities combined.

Providing loans to the schools for equipment use, textbooks, and buses.

Charging schools $73,000 to pay a relative of an Imagine Inc. executive to write a grant.

Moving money between schools indiscriminately without transparency

Providing incomplete or inaccurate information on required reports.

Jim Hall, founder of Arizonans for Charter School Accountability, said, “Imagine charter schools buy just about everything from their related management company, Imagine Inc. and are charged high fees and interest for doing so. This is called “self-dealing” and it is against I.R.S. regulations for non-profit organizations. “Hall continued, “Through confusing and byzantine financial arrangements, Imagine Inc. milks every penny out of the 19 non-profit charter schools by basically selling to themselves at a profit. The losers in this deal are the taxpayers, and children, of Arizona.”

The report, along with the three previous reports on Charter School Classroom Spending in 2016, are available at azca.org. Follow us on Facebook.

Part 4 - Imagine Charter Schools “Self-Dealing” Allows $12 MillionMore to be Spent on Management and Real Estate than on Classroom Instruction

Part 1 - 191 Arizona charter schools spend most of their budgets in the classroom but the majority, 220 schools, spend more on administration and facilities than on classroom instruction(Click here to download Part 1)Part 2 -29 Arizona charter schools spend more on administration and more on facilities than in the classroom. The Leona Group and Imagine Inc. are the worst managed charter schools in Arizona. (Click here to download Part 2)Part 3 - The Leona Group LLC. Reaps Millions in Real Estate Profits While Arizona Taxpayers (and Students) Foot the Bill . Part 3 Complete ReportDocumentation:1771 Page ACSF Loan DocumentsSun Valley High School AppraisalCharter Annual Financial Report 2016 Spreadsheet

Arizonans for Charter School Accountability recently released two reports on charter school classroom spending in 2016 (see links below) finding that 191 Arizona charter schools are efficiently run and spend more money in the classroom than on administration and facilities combined. A majority of charter schools, however, spend less on classroom instruction than on administration and buildings. Imagine Inc. and the Leona Group LLC manage the majority of schools spending more on administration and facilities than in the classroom.This report focuses on the Leona Group LLC which manages 25 schools in Arizona (and over 60 schools total in five states) to try to understand why Leona Group LLC managed schools spend so little on classroom instruction. These were the key findings:

In 2007, Bill Coats, the sole owner of the Leona Group LLC, sold 10 schools owned by Leona Group LLC to a non-profit foundation Coats created in 1998, the American Charter Schools Foundation ACSF), for $33,890,485 more than their market value.

Bill Coats maintains the same management control over the schools as he had when Leona Group LLC owned the schools but now has set management fees that are not based on student enrollment.

ACSF schools have declined in enrollment by 25% since their purchase in 2007.

Between 2007 and 2016 overall instruction spending in ACSF schools has declined from $2090/pupil to $1455/pupil while facilities costs increased from $1455/pupil to $2479/pupil.

The real estate windfall Bill Coats received in 2007 by selling schools to his own foundation has caused ACSF to cut classroom spending to among the lowest rates of any school in Arizona - to fund the excessive mortgages.

Jim Hall, founder of Arizonans for Charter School Accountability, stated “ The Leona Group LLC has made tens of millions of dollars selling schools to their own non-profit foundation for double their market value – and still retain complete management control. The schools now spend most of their budgets on mortgages and management. Arizona doesn’t monitor charter school spending so this kind of waste and abuse goes unnoticed.”

The Consequences of Charter School DeregulationArizona Charter School Classroom Spending 2016 - Part 2 (Click here to download Part 2)

Most Arizona Charter Schools Spend More on Administration and Facilities than Classroom Instruction

The Leona Group and Imagine Inc. Together Spend $28,000,000 More on Management Fees and Real Estate than in the Classroom

Part 1 of Arizona Charter School Classroom Spending 2016 (available at azcsa.org) by Arizonans for Charter School Accountability, a non-profit charter watchdog group, was released on Jan 17, 2016. The report reveals that in 2016 47% of Arizona charter schools operate efficiently - spending more money on regular and special education classroom instruction than on administration and facilities expenses combined.

The 191 charter schools that focused on classroom spending represent a broad range of charter models in Arizona. Fifty-six of the schools own their facilities and many have modern, new buildings. They exemplify many types of charter programs – alternative schools, academic/college prep charters, charters with an arts focus, and charters specializing in programs for special education students.

Part 2 of the report focuses on the remaining 221 charters that spend less on classroom instruction than on administration and facilities combined. The report finds:

Fifty charter schools spent more on administrative costs alone than on classroom instruction

Forty percent of these schools are managed by two large national charter management companies:

4 - Imagine Inc.

9- American Charter Schools Foundation (managed by the Leona Group)

8 – Kaizen Education Foundation (managed by the Leona Group).

Sixty two schools spent more on just their facilities than on classroom instruction

Five schools were run by Imagine Inc.. Thirteen are managed by the Leona Group

Twenty-nine schools spent more money individually for both administration and facilities than in the classroom.

Three schools are managed by Imagine.

11 schools are managed by the Leona Group

Two largest Arizona charter management companies, The Leona Group and Imagine Inc., together spent a total of $28,747,795 more on administration and facilities combined than on classroom instruction.

Jim Hall, founder of Arizonans for Charter School Accountability, commented, “ Arizona’s complete lack of transparency regarding charter school operations has allowed charter corporations to profit by tens of millions of dollars each year – money that should be going to teacher salaries and classroom instruction. School choice shouldn’t mean that national charter management companies have free rein to reap windfall profits and build real estate empires.”Hall continued, “ It is time for the Arizona Legislature to step up and require the Arizona Auditor General to monitor charter school spending, just like every other state in the country. Arizona’s unregulated charter schools are costing taxpayers, and Arizona’s public schools, millions of dollars every year through fraud, waste and abuse.”Part 3 of this report will be released the week of January 30, 2017 and will provide a case study of the management fees and real estate transactions that have enriched the Leona Group at the expense of Arizona taxpayers.Parts 1 and 2 of the report are available at azcsa.org. Follow Arizonans for Charter School Accountability on Facebook.

﻿Press Release Arizonans for Charter School Accountability January 17, 2017 arizcsa1000@gmail.com 602-343-3021(Click here to download the full report. Click here to download a read only copy of the 2016 Annual Financial Report charter database.)

The Majority of Arizona Charter Schools Spend More on Administration and Facilities Than on Classroom Instruction

A new study of Arizona charter school classroom spending by Arizonans for Charter School Accountability, a non-profit charter watchdog group, reveals that in 2016 only 191 (47%) of Arizona charter schools spent more money on regular and special education classroom instruction than on administration and facilities expenses combined.

The 191 charter schools that focused on classroom spending represent a broad range of charter models in Arizona. They average 425 students and 30 have enrollments of less than 100 students. Fifty-six of the schools own their facilities and many have modern, new buildings. They represent many types of charter programs – alternative schools, academic/college prep charters, charters with an arts focus, and charters specializing in programs for special education students.

Jim Hall, founder of Arizonans for Charter School Accountability (ACSA) commented, “ If 191 charter schools of all types and sizes can spend the bulk of their budget on classroom instruction, why then do the other 221 charter schools spend most of their funds on management and facilities? The public should have the expectation that all schools, both public districts and charters, are using tax dollars efficiently for the benefit of students. The majority Arizona charter schools do not meet this expectation. “The ASCA study compiled all charter Annual Financial Reports for 2016 to determine how much each charter holder spent on classroom instruction, administration, and facilities. The Arizona Office of the Audit General does this for all public districts and publishes a report card for each school detailing how funds were spent. The Auditor General, by law, cannot monitor charter spending - details regarding charter spending are not collected by any state agency.

“There is an appalling lack of transparency for charter school operations in Arizona. Legislation is essential requiring the Auditor General to monitor charter school spending. Tax funds should be going to children in the classroom not to management fees, profits, and real estate purchases.” Hall said.

The complete report can be downloaded at azcsa.org

Part 2 of the report will be released the week of Jan 23, 2017 detailing the charters that spend more on administration or facilities and examines the shocking number of charters that spend more on both administration and facilities individually than in the classroomPart 3 of the report is a case study of a charter organization that spends the less on classroom instruction than any school in Arizona.

ACSA released a report today, May 10, 2016, detailing how BASIS Scottsdale, the second best high school in the nation according to the 2016 U.S. News and World Report, systematically produces unsuccessful students that drop out, graduating only the thirty five affluent White and Asian students who are in the top .5% of all students in the nation.﻿﻿ See the full report here.

Higher Administration Charges of Arizona Charter Schools Cost Taxpayers $128 Million a Year

PHOENIX- Arizonans for Charter School Accountability and the Grand Canyon Institute have released a report on the high administrative costs associated with charter schools. This report is the first time all Arizona district charter schools’ maintenance and operation expenditures have been examined.

Using a data base developed from the Annual Financial Reports submitted to the Arizona Dept. of Education, the study found school districts average $628 per pupil in administrative costs, while charters were more than double that cost at $1,403 per pupil.

“This report highlights the need for increased scrutiny of charter school spending. It also spotlights the corporations running them that have excessive administrative costs that never reach the classroom,” said Jim Hall, founder of Arizonans for Charter School Accountability.

“While Arizona's public schools are required to justify every penny, charter schools are allowed to spend taxpayer dollars with insufficient accountability. This imbalance is unacceptable and harmful to Arizona’s teachers, students and parents. It’s time we demand that charter schools operate on the same level playing field as public schools,” Hall said.

The largest corporate charter holders are among the worst offenders, while other charters do much better.

Grand Canyon Institute Research Director, Dave Wells, noted, “The results of this study are very similar to one done in Michigan in 2012. Although we should see economies of scale with school operations., both studies found that larger corporate charters that contract out to related for-profit management companies have higher, not lower, per pupil administrative costs. The seven largest companies spend $19 million more in administrative costs than if their spending matched the $1,403 per pupil average of charter schools—and it’s about 3 times what public school districts would spend for the same number of students.”To shine a light on how and where this money is being spent, Arizonans for Charter School Accountability and the Grand Canyon Institute have three solutions to make corporate-owned charter schools more accountable to Arizona taxpayers. 1. Require charter school financial data to be collected and monitored by the Auditor General’s Office (just as they are for traditional public districts). The Arizona Board for Charter Schools should be required to use this data to investigate and sanction charter schools that misuse taxpayer dollars.2. Charter management companies need to be transparent in reporting salaries and other financial information related to administration expenses.3. Implement a public database that shows public districts and charter schools expenditures on administration and the classroom, so parents can make more informed choices when looking for the right school.

Arizona‘s lax laws on charter school accountability combined with these schools being privately owned makes it impossible to see how excessive administrative funds are being spent. Money that should be invested into the classroom instead is redirected to administrative costs. These recommendations would do much to put public schools and charter schools on an even playing field and make sure Arizona’s taxpayer dollars are used responsibly.

Arizonans for Charter School Accountability was founded in September 2014 by James Hall, a retired principal, most recently in the Washington Elementary School District. The Grand Canyon Institute, a centrist think tank, was founded in 2011 by community leaders former lawmakers and academics to improve the debate on important fiscal and public policy matters in Arizona.

The report can be found at http://GrandCanyonInstitute.org._Contact us with your story at arizcsa1000@gmail.com

9 reasons BASIS is not Arizona’s model high performing public school

Background:The first BASIS charter school was founded in Tucson in 1998 by Michael and Olga Block. The school won numerous awards and was named the top high school in the U.S. by Newsweek in 2008. There are now 14 BASIS charter schools in Arizona, Texas, and Washington D.C. This year, U.S. News and World Report named BASIS Scottsdale as the best school in Arizona and the second best school in the nation.

BASIS Schools Inc. is one of Governor Ducey's examples of a high performing charter school that public schools should emulate. We will conduct an in-depth analysis of BASIS Schools Inc. examining how they spend public funds, their corporate structure, the "most challenging" curriculum in Arizona, and the illusion of success.

Reason 1 : BASIS spends more on administration than almost all schools in Arizona

Based the 2014 Annual Financial Report filed by all schools in Arizona, BASIS Ahwatukee spends 3 times more on administration per pupil than public schools and 82% more than a charter school that out-performed several BASIS schools, Arizona Agribusiness & Equine Center South Mountain:

AZ Agribusiness South Mountain Charter School 380 students spends $1,025/pupil on administrationBASIS Ahwahtukee 699 students spends $1,854/pupil on administration

If BASIS Ahwatukee operated as efficiently as AZ Agribusiness, they would save $580,000 a year. If BASIS administrative costs were near the typical Arizona public school cost of $600/pupil they would save $880,000 – at just at one of their 10 schools.Putting this into perspective, a savings of $580,000 a year for a school of 699 students would mean 13 additional teachers (at $45,000 a year). What would your local school be able to do with 13 additional teachers?BASIS is a money making machine. But how are they able to extract so much for corporate salaries and management? The key lies in their business model that serves only the brightest students in Arizona. That’s next…

If you have information about BASIS schools you would like to share, please email us at arizcsa1000@gmail.com

Reason 2: BASIS is able to spend less on students than on administration because Basis students are all the same.Creighton Elementary District is in central Phoenix. They have 6515 students and over 90% are on free or reduced lunch, the government’s definition of poverty. 84% are Hispanic and 27% of students require ELL classes to learn to speak and read English. Ten percent of students receive special education services.

Many Creighton students come to school hungry. Most live in a home where Spanish is the primary language. Every day at school is a challenge for them and for their teachers.

Creighton provides free breakfast and lunch for students. They hire reading specialists, ELL teachers, special education teachers, counselors, nurses, and social workers to try to meet the needs of their at-risk population. Additional federal funding from Title One and I.D.E.A. don’t come close to paying for these programs. The money has to come from the general funds provided by the state.

Creighton spends 62% of their general funds on students. Creighton Elementary District spends almost four times as much on instruction as they do on administration.

BASIS Ahwatukee spends 40% of their budget on students and spends a more on administration than they do on instruction and support for kids. That is because BASIS only serves gifted students.

There are no poor kids at BASIS. Basis schools are 27% Asian and 59% White. Out of 8700 students, there are no ELL students and only two schools have special education students and constitute less than one percent of the student body.

BASIS doesn’t have a lunch program. They don’t have nurses or social workers.

The extremely advanced curriculum is responsible for keeping BASIS homogeneous. Students are required to complete high school Algebra 1 by the end on seventh grade and are encouraged to take it in fifth grade. Students are held back if required high school level courses are not passed in elementary school. High school classes are all Advanced Placement courses with college level expectations and examinations.

BASIS is required to admit everyone, just like Creighton. BASIS goes to great lengths explaining of the difficulty of the curriculum and parents are required to attend pre-admission workshops that stress how rigorous the program is to discourage all but the brightest from attending. Many that enroll leave within a few months as they fail the required courses that are 2-3 years above grade level.

Creighton Elementary should perhaps change their curriculum to require all students to pass Algebra 1 in seventh grade. They could be a model school, like BASIS.

Reason # 3: BASIS schools do not have a governing Board available to the public.I attended a BASIS Schools Inc. board meeting today; at least I tried to. BASIS has one school board governing all 13 BASIS schools around the state. So much for local control.

Board meetings are held in their corporate offices in Scottsdale and are supposedly available by phone conferencing at each of the 13 schools. The BASIS school board met seven times between February 2014 and February 2015. In those meetings they achieved the following:- Approved 9 policy addition for select schools- Approved school enrollment caps and grade additions- Approved the Parent and Student Handbook- Set fees for a program- Approved the revised budget 2014 and the proposed budget 2015, as required by law

That’s it. No other discussion or reports of any kind the entire year. BASIS opened new schools and received million of dollars in bond financing. Not even a report from BASIS Ed. – the management company that the board supposedly hired to run the schools.

The meeting scheduled at 10:00 today had 13 agenda items – “review, discussion, and possible approval” of each of the revised 2015 budgets for the 13 schools. This is the final budget revision of the year and it shows if the schools stayed in their established budgets.

I came to Suite B 121 in a plush office building in Scottsdale at 10:04. B121 had a sign on the wall, but only B100 was there, the main office for Basis Schools Inc. I asked the receptionist for directions to B121 for the board meeting. She had no idea what I was talking about and told me B121 no longer existed. She called a co-worker that also knew nothing about a board meeting. She got on her phone and then walked by me to go upstairs. As I waited, a gentleman came in asking about the board meeting as well. Finally at 10:15 we were told that the meeting was upstairs but it only lasted ten minutes and was over. There was someone still upstairs, however, if we wanted to talk to someone. The other gentleman is a BASIS parent with a concern and went upstairs. I gave the lady my card and told her that if the board discussed, reviewed, and approved 13 budgets in ten minutes I had nothing to ask.

There obviously was no review or discussion of the schools' budgets. Non- BASIS employee board members were not present – they attended via a ten minute phone call.

I am filing an open meeting complaint with the Arizona Attorney General’s Office next week (after I read the meeting minutes, if they took them) for denying a citizen access to a public meeting and posting false information meant to mislead the public.

The BASIS schools are actually run by the Board of Directors of the non-profit corporation BASIS Schools Inc. They selected the school board to do the minimum possible while they actually run the schools. The Arizona Attorney General has ruled (100-009 R99-013) that Board of Director meetings of non-profit charter companies are not public meetings, so the public has no right to attend. Every decision made about BASIS Schools, except things like the Visitors Policy and Student Handbook, are made in secret.

Again, some perspective from real public schools. All public school governing boards are comprised of community members living in the school district. The board approves vouchers (all money paid to vendors and employee pay checks), approves all budgets, accepts donations, and hires and fires all personnel, including the superintendent. They receive reports from the superintendent, board members, district departments, schools, and students. They set policy. They are elected community members that have the final say in how the district is run.

BASIS Schools Inc. school board does none of that. They are not a governing board. Of course, they only have 10 minutes to spare.

Reason # 4 BASIS cons parents out of millions of dollars every year.

Remember these figures throughout this post:

BASIS Ahwatukee had 699 pupils last year and spent $1,296,279 on administrative costs - less than on classroom instruction, including teacher’s salaries, supplies, materials, etc. 1.3 million dollars would pay the salary of twelve principals…to run one school.

Here is what BASIS said in their 2012 non-profit 990 tax report regarding why they didn’t publish their non-discrimination policy as required:

“….we are charged by the length of the statement/column inch for solicitation printed in the newspaper or media and are constrained by our limited resources”.

This fabrication about limited resources is the manta BASIS parents face every day. Even though BASIS spends more than almost every charter school on management fees and administrative costs, they demanded fees and contributions from parents in order to provide basic services. BASIS extracted $ 3,659,875 from parents in 2012, $1.6 million on extra-curricular fees alone.

Just to apply to BASIS requires a refundable $300 fee for high school students and a $150 fee for K-8. Just to apply.

There are no pencils or paper available in BASIS schools. Parents are expected to provide all school supplies. If workbooks are used in a class, parents must pay for them. If a student signs up for any optional class or elective, parents must purchase all of the materials and supplies used in the activity – art supplies, science lab supplies, etc.

Florence Unified School District is about the same size as BASIS (8000 students). All clubs and activities are free. Major sports like basketball and football require a $100 fee. Florence spent $56,816 on extra-curricular activities and $812,989 on sports from their general operation fund. BASIS spent: zero. They passed all the costs to parents while pocketing millions of dollars in profits.

BASIS Ahwatukee paid less for teachers than they did for central and school administration costs. But here is what they tell parents in their brochure:

“As a charter school, BASIS receives less state and local funding per student than traditional schools, making it unfeasible to pay faculty much more than the average teacher salary without the help of the Annual Teacher Fund”.

The Annual Teacher Fund provides bonus incentives to teachers. Parents are repeatedly asked to contribute $1,500 to this program each year. Parents are expected to pay teacher salaries at BASIS.

The ultimate arrogance has to be the New Schools Development Fund. With missionary zeal, BASIS asks parents to help cover the costs “…associated with starting new schools, thus continuing our mission to raise the standards of American K-12 education to internationally competitive levels”.

Basis just refinanced eight of their school to the tune of $88,000,000 to expand their empire. And parents have bake sales to help cover construction costs.

BASIS parents think they are getting a private school education for free so contributing a little here and there seems appropriate. But BASIS is well funded and able to reap huge profits from Arizona taxpayers. BASIS parent contributions are icing on the cake. BASIS plays their parents for suckers.

Why BASIS charter schools are not model high performing public schools

Reason # 5: BASIS is a school for the exceptionally mathematically gifted – its curriculum far more accelerated than the best private college prep high schools in Arizona.

3.5 per cent of all graduating high school seniors in the U.S. passed Advanced Placement (AP) Calculus AB in 2010. Only 1.6 percent of Arizona seniors passed the exam that year. All BASIS students must pass Calculus AB to graduate and most due so before their senior year.

The minimum requirement for BASIS freshmen is pre-calculus and many are taking AP Calculus AB as freshman. BASIS freshman Eric Kim took the AP Calculus AB test and earned a perfect score – one of only ten in the world to do so. A junior at BASIS Scottsdale got a perfect score on the more difficult AP Calculus BC exam last year – one of only nine in the world.

BASIS seventh grade students are required to pass high school Algebra 1 to be promoted to the eighth grade. But when you look at the curriculum of the best private high schools in the state, Algebra 1 is still a freshman requirement.

Phoenix Country Day has been considered one of the best private college prep schools in Arizona for decades. Their graduates are accepted in top colleges around the world. It is the most expensive high school school in Arizona with tuition costs of $24,600 a year. As you can imagine, parents have high expectations for their children and the school.

Phoenix Country Day School’s math requirements for graduation are:

Algebra IGeometryAlgebra IIA 4th course for which Algebra II is a prerequisite.Brophy Prep is also one of the leading private high schools in Arizona (tuition $13,900). Their math requirements are the same as Phoenix Country Day School.

BASIS students are required to pass the same classes freshmen and sophomores take in the private schools by the end of eighth grade. Many seventh and eighth grade students are taking the math classes required by seniors at the most expensive prep schools in the state.

BASIS curriculum is far more accelerated than private college prep schools in Arizona. BASIS boasts that their curriculum is one of the most accelerated in the nation. It certainly is.So who can be successful at a BASIS school? Only the top 1% of math students in Arizona. Maybe.

Reason # 6: The BASIS model requires students in grades 5-8 to fail so only the elite continue to high school.

Between the four years 2010 -2013, 77,135 students in the U.S. took six AP exams. That is 2.3% of all high school graduates for 2013. Data is not available on how many students actually PASSED 6 exams.

BASIS requires all graduates to pass at least 6 AP exams. Less than 2% of all students in the nation can do that.BASIS students average 9.9 AP exams passed. Six tenths of one percent of students in the U.S. take 9 exams, let alone pass them.

Bottom line. To graduate at a BASIS school, you have to be in the top 1% of students nationwide. Or better.

Let’s look at BASIS Scottsdale, the second best high school in the nation for 2015 according to U.S. News and World Report.BASIS Scottsdale has been open since 1998. In 2010, 144 students were enrolled in fifth grade. That cohort of students decreased to 111 in 7th grade and 99 in eighth grade. In 2014, only 75 students out of the original 144 became freshmen. Last year there were on 44 seniors at BASIS Scottsdale (BASIS has an average of 33 seniors in their 7 high schools).

One hundred fifth grade students in 2010 failed at BASIS Scottsdale and transferred to other schools. About half made it to 9th grade and only 30% made it to their senior year.

There is no shortage of parents of gifted and talented students that want their children to have every possible advantage. They enroll their children at BASIS in 5th and 6th grade. But a majority of the brightest students in Arizona don’t succeed at BASIS Scottsdale.

The 99 students in eighth grade passed high school Algebra I in 7th grade to get there. When I was a junior high principal in a middle class school, we had less than a dozen 7th graders out of nearly 2000 students in a six-year period pass Algebra 1. If these very gifted students were at BASIS Scottsdale, less than half would graduate.

BASIS is not just a sorting machine. It is a failure machine by design. But they have 100% of their forty four seniors passing AP exams. They are the best school in the nation. If BASIS Scottsdale was a public school they would be shut down.

Reason 7: BASIS Scottsdale is the second best high school in the nation, according to U.S. News and World Reports. But BASIS Scottsdale does not meet the magazine’s basic scoring criteria and should not have been considered.

The ranking of the nation’s high schools and colleges by U.S News and World Reports is a big deal. It is a cornerstone of the BASIS sales pitch – proof they are the best schools in Arizona. But the folks at U.S. News apparently didn’t look at the same school we have been looking at in this series.

It is important to examine the criteria employed by U.S. News to rate American high schools. They used data from the 2012-13 school year. This is from the Technical Guide 2015:

Step 1: The first step determined whether each school's students were performing better than statistically expected for students in their state.We started by looking at reading and math results for all students on each state's high school proficiency tests. We then factored in the percentages of economically disadvantaged students – who tend to score lower – enrolled at the schools to identify schools performing much better than statistical expectations.

BASIS Scottsdale has NO economically disadvantaged students; they don’t collect the data because they have no lunch program identifying free/reduced lunch students, the indicator for being economically disadvantaged. A great school “beats the odds” and helps disadvantaged students become successful. There is no indication that BASIS Scottsdale has any economically disadvantaged students.

Step 2: For schools passing this first step, the second step assessed whether their disadvantaged students – black, Hispanic and low-income – were outperforming disadvantaged students in the state.

BASIS Scottsdale is listed as 50% minority in the U.S. News report. Actually there were 328 Asians, 33 Hispanics, 18 Multi-race, and 358 White students enrolled in 2012-13. There were 12 Blacks the year before, but they didn’t make it. Since there are no disadvantaged students at BASIS Scottsdale, it is impossible to compare the 33 Hispanic students with disadvantaged Hispanic students in Arizona. A “beats the odds” school helps minority students become successful. This is not BASIS Scottsdale.

Step 3: Schools that made it through the first two steps became eligible to be judged nationally on the final step – college-readiness performance – using Advanced Placement or International Baccalaureate test data as the benchmarks for success, depending on which program was largest at the school.This was done by computing a College Readiness Index based on the school's AP or IB participation rate – the number of 12th-grade students in the 2012-2013 academic year who took at least one AP or IB test before or during their senior year, divided by the number of 12th-graders – and how well the students did on those tests.

BASIS Scottsdale weeded out the 140 students who enrolled in 5th grade down to 32 high school graduates in 2012-13. One hundred percent of these students passed at least six AP tests. The 32 students who made it to the 12th grade after the annual purging of inferior gifted students made BASIS Scottsdale the best school in Arizona.

And who graduated from BASIS Scottsdale in 2013? 14 Asians and 18 Whites. Black and Hispanic students comprised 49% of all Arizona students in 2012-13. Not one of them made it through BASIS Scottsdale.

BASIS Scottsdale simply is not the best high school in Arizona. Maybe it is the most racist?

Reason 8: BASIS Schools Inc. is a very lucrative business that is making millions of dollars in profit every year.

In 2009, BASIS owner Michael Block made $156,362 and his wife Olga earned $197,507 as the sole officers of BASIS Schools Inc. Olga’s daughter received $19,000 for unspecified services, and her sister was paid $53,047 for accounting services, performed from the Czech Republic. Good salaries to run two schools.

The Blocks had plans for major expansion in the coming years. Since the company is a non-profit, they had to declare the income they received (and family members received in the Czech Republic...) on the annual 990 form submitted to the IRS every year by non-profit organizations. There were big profits to be made with the BASIS model, but how could they realize these profits without having to declare them publicly?

The answer was for the Blocks to become sole owners of a new company, BASIS Ed. Inc., a for-profit charter school management company. A private, for-profit management company does not have to divulge their financial affairs to the public. They simply charge a set management fee that includes all management salaries and company profits. The public can never see what these salaries or profits are.

BASIS Schools Inc. selected a management company to run all aspects of their schools on June 25, 2009. They selected… themselves. Now the salaries and profit gained by the Blocks is buried in the management fee charged by BASIS Ed. Inc. that began as $1,767,000 in 2009-10 and increased to $7,059,200 by 2012-13.

By 2012-13, BASIS had grown from two schools to eight. Revenues grew by a factor of four, as you would expect. But their total assets grew from 13 million dollars to 122 million dollars with the addition of six campuses. State law allows all assets gained by a charter school to be retained by the charter holder, even if the charter is revoked. BASIS expanded their real estate empire by 109 million dollars in four years – with nothing down and the annual mortgage payments of $5,268,294 paid for by Arizona taxpayers.

The cash position of BASIS also improved over the four years. In 2009 they had $565,282 in cash, savings, pledges, and grants. By 2013 that had grown to $7,826,289.

The Blocks have become very rich indeed.

BASIS Parents: Would you please put a smiley face on the $1500 check you write to BASIS every year to help pay teacher salaries? The Blocks are laughing all the way to the bank.

Why BASIS charter schools are not model high performing public schoolsReason # 9: BASIS exists because of the unfunded mandates public schools must meet, and BASIS avoids. A look at the Prescott Unified School District:

Prescott Unified School District (PUSD) had 4917 students in 2014. This year enrollment dropped to 4456 students and the school board had to close an elementary school. What caused the enrollment decline? BASIS Prescott came to town.

Prescott Unified can’t compete with BASIS, and it is by the design of the Arizona State Legislature. BASIS has been given more money per pupil than Prescott Unified and has been given license to spend the money in any way they chose. And BASIS Prescott choses to accept and retain only the brightest of the bright while extracting huge profits from their school budget. Prescott Unified takes every student in Prescott. They have to. They want to. They are a public school district.

As noted in previous posts, the BASIS model is based on:- An extremely advanced curriculum where students in 7th grade are required to complete high school algebra and high school students are required to pass at least six college advanced placement tests. Only the most gifted students can meet this standard.- The absence of minorities, no special education students, no English Language learners, and no indication of low-income students..- The expectation that parents pay teacher salaries by asking each family to donate $1500 each year to supplement low BASIS salaries.- Not providing funds for extra curricular activities like clubs and sports.

BASIS Prescott served 364 students in grades 5-10 this year. They plan to become a K-12 school with a maximum enrollment of 840 in the future.

Prescott Unified School District has 4454 students in grades K-12. They serve a diverse population. There are 69 Asian, 673 Hispanic, and 111 Native American students in PUSD. There are also 475 special education students and 1539 students who receive free or reduced lunch.

Prescott Unified welcomes all students and provides programs to meet their individual needs. These programs are funded largely out of their general maintenance and operations budget:

- Special Education: The majority of the 475 special education students have specific learning disabilities. Schools receive less than $20 per pupil from the state to provide programs for SLD students. PUSD budgeted 4.5 million dollars for special education. BASIS Prescott has no special education programs.- PUSD budgeted $13, 419 to support extra curricular activities and $266,664 for sports programs. BASIS Prescott budgeted zero.- PUSD has hires counselors, nurses and other support staff to assist at-risk students, who are often children dealing with poverty at home. It costs PUSD over $1,000,000 a year to do this. BASIS has no counselors or nurses and they have no at-risk students. They budget nothing.

Prescott Unified has been in a budget crisis for years. Their per pupil funding has been approximately $5400 for maintenance and operations for several years. BASIS Prescott received $6981 (after mortgage payments) - $1590 per pupil more than PUSD and had to provide none of the support programs that Prescott Unified offers to serve ALL students in the Prescott community.

Where does BASIS spend the extra funds they receive from lucrative state funding and the limited programs provided? Administration, expansion, and profit.

BASIS Prescott budgeted $921,000 for administrative costs, for a school of 364 students. That’s 36% of their M&O budget and $2,531 per student.

PUSD spent 13% of their budget on administrative costs, which is only $708 per student.

PUSD budgeted $328,757 for General Administration that includes the superintendent ‘s office and district expenses. BASIS Prescott budgeted $508,085 for the same services – for a school of 364 students.

PUSD has 585 gifted students. There is no state funding to support gifted education. The gifted students are going to BASIS where 100% of their classroom budget is dedicated to gifted students. How can Prescott Unified compete with that?

And herein lies the problem. Prescott Unified is mandated to provide special education programs, ELL classes, and what ever it takes to have third grade students read at grade level. The state provides minimal, or no additional funds to pay for these mandates. Prescott Union is expected to meet the expectations of the community as well by providing quality programs and services for all students, so they hire librarians, nurses, and counselors at a cost of over $1,000,000 at year. They provide all day kindergarten when the state only pays for half-day programs. They pay for extra curricular activities and sports programs, the pride of Prescott and of many small towns in America. All of this has to come out of the maintenance and operations budget.

BASIS Prescott can devote all of its resources toward gifted education, since it effectively excludes at-risk and special education students. BASIS doesn’t have nurses or ELL classes. There is no expense assuring 3rd grade students can read – all BASIS Prescott students meet or exceed on the AIMS test. Without having to fund required programs and not worrying about the Prescott community’s wishes for nurses, counselors, all day kindergarten and sports programs, BASIS Prescott is able to divert hundreds of thousands of taxpayer dollars to corporate profits, money that could be used to fund mandated programs in public schools like Prescott Unified.

Requiring public schools to pay for mandated programs out of the general budget while allowing charter schools complete autonomy and selective admission and retention of students has been purposely legislated in Arizona. There are winners and losers. BASIS Prescott is a winner. Public schools, like Prescott Unified are the losers. So are the children of Prescott - and the town itself.

(Data is from the revised budgets for 2014-15 submitted by BASIS Prescott and Prescott Unified School District. Since BASIS Prescott is in its first year of operation, the adopted budgets for the two schools were utilized, rather than Annual Financial Reports. Demographic data comes from the October 1 Enrollment Count Reports submitted by all public and charter schools. Information about BASIS Prescott comes from their Parent Handbook available on the BASIS website.)